Facts of the Case

The petitioner, Tvl. V.N.S. Construction, represented by its proprietor K. Vetrivel, challenged the assessment order dated 29.01.2026 passed by the respondent, the State Tax Officer (Review), under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017, for Assessment Year 2021-22.

The respondent alleged suppression of turnover on the basis of a difference between the turnover reflected in Form GSTR-7, representing TDS deductions, and the turnover reported in Form GSTR-3B. The GSTR-7 figures were treated as additional taxable turnover allegedly not disclosed by the petitioner. On this basis, a tax demand of Rs. 9,46,542/-, together with interest and penalty, was raised under Section 74 of the TNGST Act.

The petitioner’s case was that a substantial portion of the turnover related to operation and maintenance contracts executed for the TWAD Board, which were claimed to be exempt from GST under Notification No. 12/2017-Central Tax (Rate). According to the petitioner, the relevant contract documents and bid conditions specifically provided that GST was not applicable to such contracts.

The petitioner further contended that Form GSTR-7 merely reflects TDS deductions and cannot, by itself, determine taxability or establish suppressed turnover. Work orders, bid documents and exemption-related records were relied upon in support of the claim. It was also asserted that the jurisdictional assessing authority had already accepted the same explanation and dropped proceedings on the identical issue for the same assessment year.

The judgment records that the impugned assessment was made on the footing that the petitioner had not utilised the opportunities provided. However, the petitioner maintained that detailed replies and supporting documents had been submitted and were not properly appreciated. The page 3 table in the judgment specifically records the alleged GSTR-7/GSTR-3B discrepancy, the exemption claim concerning TWAD Board contracts, and the petitioner’s explanation regarding non-consideration of its materials.

Issues Involved

The principal issues before the High Court were:

  1. Whether the assessment order passed under Section 74 of the TNGST Act, 2017 could be sustained when the demand was founded on differences between turnover reflected in GSTR-7 TDS deductions and turnover reported in GSTR-3B.
  2. Whether the turnover reflected through GSTR-7 could automatically be presumed to represent taxable supplies or suppressed taxable turnover.
  3. Whether the petitioner’s claim that the operation and maintenance contracts executed for the TWAD Board were exempt under Notification No. 12/2017-Central Tax (Rate) required fresh and meaningful consideration.
  4. Whether the respondent had properly considered the work orders, bid documents, exemption-related records and the petitioner’s detailed explanations.
  5. Whether the impugned order suffered from lack of proper consideration and violation of the principles of natural justice.
  6. Whether the matter deserved remand without imposing a pre-deposit or other condition, considering the nature of the claimed GST exemption.
  7. Whether attachment of the petitioner’s bank account pursuant to the impugned assessment could continue after the assessment order itself was set aside.

Petitioner’s Arguments

The petitioner contended that the respondent wrongly treated the entire difference between GSTR-7 and GSTR-3B as suppressed taxable turnover. According to the petitioner, GSTR-7 is a return reflecting GST TDS deductions and does not, by itself, conclusively establish that the underlying receipts constitute taxable outward supplies.

It was argued that a substantial portion of the relevant turnover arose from operation and maintenance contracts executed for the TWAD Board and that such services were exempt from GST under Notification No. 12/2017-Central Tax (Rate).

The petitioner relied upon contract documents, work orders, bid conditions and exemption-related materials to support the contention that GST was not applicable to the relevant contracts.

It was further submitted that the jurisdictional assessing authority had already considered and accepted the same explanation and had dropped proceedings on the identical issue for the same assessment year.

The petitioner maintained that it had actively participated in the proceedings and submitted detailed replies with supporting documents. However, according to the petitioner, the respondent failed to properly appreciate the explanation, exemption notification and contractual records, and passed the impugned order mechanically without discussing the materials placed on record or assigning adequate reasons for rejecting them.

The petitioner therefore contended that the assessment order was cryptic, non-speaking, arbitrary, illegal and violative of the principles of natural justice.

Respondent’s Arguments

The respondent Revenue was represented by the learned Government Advocate.

The assessment proceeded on the basis that there was a discrepancy between the turnover reflected in Form GSTR-7 and the turnover reported in Form GSTR-3B for Assessment Year 2021-22. The GSTR-7 figures were treated as additional taxable turnover allegedly not disclosed by the petitioner.

The Revenue’s position underlying the impugned assessment was that the turnover reflected through TDS deductions represented taxable supplies and that the difference justified the demand raised under Section 74 of the TNGST Act, together with applicable interest and penalty.

The impugned assessment was also stated to have been made ex parte on the ground that the petitioner did not utilise the opportunities provided during the assessment proceedings.

Court Order / Findings

The High Court considered the nature of the discrepancies, the explanation offered by the assessee on merits, and the reasons placed before the Court concerning the opportunity in the assessment proceedings.

The Court held that an opportunity could be granted to the petitioner-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 under appropriate conditions in other cases, in the present case, the service rendered was exempt from GST and, therefore, an opportunity was granted to the petitioner without any condition.

Accordingly, the High Court allowed the writ petition and issued the following operative directions:

  1. The impugned assessment order dated 29.01.2026 was set aside.
  2. The matter was remanded back to the respondent for fresh consideration.
  3. The assessee was directed to appear before the respondent without fail and submit its reply and documents in support of its claim.
  4. The respondent was directed to consider the matter afresh and pass orders in accordance with law.
  5. Since the impugned assessment order was set aside, any attachment of the bank account made pursuant to the impugned order was directed to stand raised.
  6. No costs were awarded, and the connected miscellaneous petition was closed.

Important Clarification

This judgment is particularly significant in cases where tax liability is proposed merely by comparing GSTR-7 TDS data with GSTR-3B turnover. The factual controversy recorded in the judgment shows that GSTR-7 figures were treated by the assessing authority as additional taxable turnover, whereas the petitioner specifically asserted that GSTR-7 only reflected TDS deductions and could not independently determine the taxability of the underlying supplies.

The order should, however, be understood in its precise procedural and factual context. The High Court set aside the impugned assessment and remanded the matter for fresh consideration; it did not substitute itself for the assessing authority by finally computing the petitioner’s tax liability.

A further important feature is that the Court granted the fresh opportunity without any condition, recording that the service rendered was exempt from GST. This distinguishes the case from remand matters where courts may impose conditions such as partial payment or pre-deposit as an equitable requirement.

The Court also expressly linked the survival of consequential recovery action to the validity of the assessment order. Once the impugned assessment was set aside, the bank account attachment made pursuant to that order was directed to stand raised.

Sections / Provisions Involved

Section 74 of the TNGST Act, 2017 — Provision under which the impugned assessment order dated 29.01.2026 was passed.

Article 226 of the Constitution of India — Constitutional jurisdiction invoked by the petitioner for issuance of a writ of Certiorarified Mandamus.

Notification No. 12/2017-Central Tax (Rate) — Relied upon in relation to the petitioner’s claim that operation and maintenance services/contracts executed for the TWAD Board were exempt from GST.

Form GSTR-7 — Relevant to GST TDS deductions and the turnover discrepancy forming the basis of the proceedings.

Form GSTR-3B — Summary return against which the GSTR-7-related turnover figures were compared.

Principles of Natural Justice — Invoked in relation to the alleged failure to meaningfully consider the petitioner’s replies, documents, exemption claim and supporting contractual records.

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1783067021_411compressed.pdf

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