Facts of the Case

The petitioner, Tvl. K.R.K. Timbers, represented by its proprietor K. Regi Kumar, challenged the assessment order dated 07.02.2025 passed by the respondent under Section 73 of the TNGST Act, 2017 for the assessment year 2020-21.

The respondent alleged that the petitioner had availed excess Input Tax Credit of ₹13,01,251 on account of a mismatch between GSTR-3B and GSTR-2A. The Department further presumed that the petitioner had wrongly availed common ITC attributable to exempt turnover relating to firewood under HSN 4401 and had failed to reverse the same under Section 17 of the GST Act. Consequently, demand was raised along with interest and penalty under Section 73.

The assessment was made ex parte because the petitioner had not utilised the opportunities provided during the assessment proceedings.

The petitioner’s case on merits was that it was engaged in the business of timber and exempt firewood, maintained separate accounts for taxable and exempt supplies, did not avail ITC on purchases relating to exempt firewood transactions, and did not collect GST on such exempt supplies.

The petitioner further explained that the alleged GSTR-2A mismatch arose because certain suppliers had incorrectly reported transactions as B2C instead of B2B, resulting in eligible ITC not being reflected in GSTR-2A. According to the petitioner, valid tax invoices, purchase records, books of account and supplier confirmations were available to establish the genuineness of the transactions.

The detailed comparative table appearing on page 3 of the judgment records three crucial aspects: the discrepancies alleged by the Department, the assessee’s explanation on merits, and the explanation for failure to avail the opportunity of hearing.

Issues Involved

  • Whether the ex parte assessment order passed under Section 73 of the TNGST Act, 2017 could be sustained when the petitioner claimed that notices and hearing intimations uploaded on the GST portal were not effectively brought to its knowledge.
  • Whether alleged excess ITC of ₹13,01,251 could be determined merely on the basis of mismatch between GSTR-3B and GSTR-2A without examining the petitioner’s tax invoices, purchase registers, books of account, reconciliation statements and supplier confirmations.
  • Whether the petitioner was liable to reverse ITC under Section 17 in respect of exempt firewood turnover when it specifically claimed that separate accounts were maintained and no ITC had been availed on purchases relating to exempt firewood.
  • Whether an opportunity of fresh adjudication should be granted to the petitioner to submit objections and supporting documents.
  • Whether such remand should be made subject to any pre-deposit or other condition, particularly when the disputed commodity was stated to be exempt from GST.
  • Whether bank account attachment made pursuant to the impugned assessment order could continue after the assessment order itself was set aside.

Petitioner’s Arguments

The petitioner contended that it was engaged in the business of timber as well as exempt firewood falling under HSN 4401 and had maintained separate accounts for taxable and exempt supplies.

It was specifically argued that:

  • No ITC was availed on purchases relating to exempt firewood transactions.
  • No GST was collected on exempt firewood supplies.
  • The alleged GSTR-2A mismatch arose because certain suppliers incorrectly reported transactions as B2C instead of B2B.
  • Due to such incorrect supplier-side reporting, otherwise eligible ITC did not reflect in GSTR-2A.
  • The petitioner possessed valid tax invoices, purchase records, books of account and supplier confirmations to substantiate the genuineness of the transactions.
  • The respondent failed to verify purchase registers, invoices, reconciliation statements and supporting records before treating the ITC as ineligible.

Regarding non-participation in the assessment proceedings, the petitioner explained that the entire proceedings, including notices and hearing intimations, had been uploaded only on the GST portal. Being a small trader with limited GST knowledge, the petitioner had entrusted compliance matters to a part-time accountant. The accountant allegedly failed to monitor the GST portal and did not inform the petitioner about the notices or hearing dates.

As a result, the petitioner remained unaware of the proceedings and could not submit objections or produce supporting documents before the assessment order was passed ex parte.

Respondent’s Arguments

The respondent-Revenue was represented by the learned Government Advocate.

The Revenue’s position, as reflected in the impugned proceedings and summarised by the Court, was that:

  • There was alleged excess availment of ITC amounting to ₹13,01,251 based on mismatch between GSTR-3B and GSTR-2A for AY 2020-21.
  • The petitioner was presumed to have wrongly availed common ITC attributable to exempt firewood turnover.
  • Such ITC was allegedly required to be reversed under Section 17 of the GST Act.
  • Demand was consequently raised along with interest and penalty under Section 73 of the TNGST Act.
  • The assessment came to be completed ex parte because the petitioner did not utilise the opportunities provided.

Court Order / Findings

The Madras High Court considered:

  • the nature of the discrepancies noted by the Department;
  • the explanation offered by the assessee on merits; and
  • the reasons placed before the Court for failure to avail the earlier opportunity.

The Court held that an opportunity could be granted to the assessee to present its submissions and produce relevant supporting documents before the respondent Assessing Officer.

Significantly, the Court observed that although such opportunities had been extended on equitable grounds subject to appropriate conditions in other matters, in the present case the commodity was exempt from GST. Therefore, the petitioner was granted an opportunity without any condition.

Accordingly, the writ petition was allowed with the following directions:

  • The impugned assessment order dated 07.02.2025 was set aside.
  • The matter was remanded back to the respondent.
  • The assessee was directed to appear before the respondent without fail and submit its reply and documents in support of its claim.
  • The respondent was directed to consider the matter afresh and pass orders in accordance with law.
  • Since the assessment order was set aside, any attachment of the bank account made pursuant to the impugned order was directed to stand raised.
  • No costs were awarded.
  • The connected miscellaneous petition was closed.

Important Clarification

The judgment should not be understood as a final adjudication by the High Court that the entire disputed ITC of ₹13,01,251 was substantively admissible. The Court set aside the ex parte assessment and remanded the matter for fresh consideration, enabling the assessee to submit its reply and supporting records.

The particularly important aspect of the order is that the Court granted a fresh opportunity without imposing any condition, noting that the commodity involved was exempt from GST.

Further, the Court’s direction regarding bank attachment flowed directly from the setting aside of the assessment order: any bank account attachment made pursuant to the impugned assessment order stood raised.

The assessee is nevertheless required to appear before the respondent without fail and substantiate its claim through relevant documents. Thus, the final determination of ITC eligibility remains with the Assessing Officer upon fresh adjudication in accordance with law.

Sections / Legal Provisions Involved

Section 73 of the TNGST Act, 2017 / GST Act framework — Proceedings relating to determination of tax not paid, short paid, erroneously refunded, or ITC wrongly availed or utilised in cases not involving fraud, wilful misstatement or suppression of facts.

Section 17 of the GST Act — Apportionment of credit and blocked credits; relevant to the Department’s allegation concerning common ITC attributable to exempt supplies and the requirement of proportionate reversal.

Article 226 of the Constitution of India — Constitutional writ jurisdiction invoked to challenge the assessment order and seek certiorarified mandamus.

HSN 4401 — Referred to in the judgment in connection with the petitioner’s firewood transactions claimed as exempt supplies.

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1783065522_402.pdf

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