Facts of the Case

The petitioner, M/s Chidambaram Pillai Sankaran, a civil works contractor executing Government and local body projects, challenged the assessment order dated 28.10.2025 relating to Assessment Year 2021-22. The assessment was made ex parte because, according to the order, the petitioner did not utilise the opportunities provided during the assessment proceedings.

The principal dispute concerned an allegation that the petitioner had wrongly availed Input Tax Credit of ₹18,49,218 under Section 17(5) of the TNGST Act in respect of insurance services, auxiliary insurance services, maintenance and repair services of transport machinery and equipment, and rental services of transport vehicles. On that basis, tax, interest and penalty were imposed under Section 73.

A further discrepancy related to interest of ₹17,822 under Section 50(1) on the allegation that certain invoices pertaining to earlier periods were reported belatedly in GSTR-1 returns. The detailed comparative table appearing on page 3 of the order specifically records the discrepancies, the assessee’s explanation on merits, and the reason for not availing the opportunity.

The petitioner explained that the entire proceedings had been uploaded only on the GST portal. Being a small contractor with limited knowledge of GST portal operations, the petitioner had entrusted compliance matters to a part-time accountant, who allegedly failed to inform the petitioner about the notices and hearing proceedings. Consequently, the petitioner claimed to have remained unaware of the proceedings until receipt of the third reminder notice dated 04.09.2025.

Issues Involved

The principal issues before the Court were whether the ex parte assessment order dated 28.10.2025 warranted interference and a fresh opportunity of hearing; whether ITC of ₹18,49,218 relating to the disputed services could be mechanically treated as blocked credit under Section 17(5) without factual verification of their nexus with taxable business activities; whether delayed reporting of invoices in GSTR-1 automatically justified interest under Section 50(1) without establishing delayed payment of tax; and whether the petitioner’s explanation for non-participation justified conditional remand on equitable grounds.

Petitioner’s Arguments

The petitioner submitted that it was engaged as a civil works contractor executing Government and local body projects. According to the petitioner, the disputed services related to construction machinery, JCBs, rollers, earth movers, tippers and other equipment used exclusively for business purposes. Such services were asserted to be essential for execution of works contracts and to have a direct nexus with taxable business activities. Therefore, the petitioner contended that the credits could not be mechanically classified as blocked credits under Section 17(5) without proper verification of the underlying facts.

Regarding interest under Section 50(1), the petitioner submitted that there was no suppression of turnover or evasion of tax. The outward supplies had been duly accounted for and the tax liability had been discharged through returns. The petitioner argued that mere delayed reporting of invoices in GSTR-1 could not automatically result in interest liability unless delayed payment of tax was established.

On the failure to participate in the assessment proceedings, the petitioner relied upon the fact that proceedings were uploaded on the GST portal and asserted that the part-time accountant entrusted with compliance had failed to communicate the notices and hearing proceedings.

Respondent’s Arguments

The respondent-Revenue was represented by the learned Government Advocate. The impugned assessment proceeded on the basis that the petitioner had not utilised the opportunities provided and, therefore, the assessment was completed ex parte. The Revenue’s case, as reflected in the impugned proceedings and summarised by the Court, involved alleged ineligible ITC under Section 17(5) and interest liability under Section 50(1) for late reporting of invoices.

Important accuracy note: The judgment does not record a detailed, separate substantive counter-argument by the respondent on every disputed item beyond noting the Revenue’s representation and summarising the grounds of assessment. Accordingly, no additional argument should be attributed to the respondent beyond what is contained in the order.

Court Order / Findings

The Madras High Court considered the nature of the discrepancies, the explanation offered by the assessee, and the reasons given for not availing the earlier opportunity. The Court held that an opportunity could be granted to the assessee to present submissions and produce relevant supporting documents before the assessing officer. The Court observed that such opportunities had been extended on equitable grounds, but subject to appropriate conditions.

Accordingly, the writ petition was allowed on the following terms:

  1. 25% Deposit Condition: Within four weeks from receipt of the web copy of the order, the petitioner must deposit 25% of the disputed tax amount with the respondent, without waiting for a certified copy.
  2. Assessment Order to Stand Set Aside upon Deposit: Upon such deposit, the impugned assessment order dated 28.10.2025 shall stand set aside and the matter shall stand remanded to the respondent.
  3. Fresh Reply and Supporting Documents: The assessee must appear before the respondent without fail and submit its reply and documents supporting its claim.
  4. Fresh Adjudication: The respondent shall consider the matter afresh and pass orders in accordance with law.
  5. Bank Attachment Raised: Since the impugned assessment order was set aside, any attachment of the bank account made pursuant to that order shall stand raised.
  6. No Costs: No order as to costs; the connected miscellaneous petition was closed.

Important Clarification

The Court did not finally adjudicate on the merits whether the disputed ITC of ₹18,49,218 was admissible or blocked under Section 17(5). It also did not finally determine whether interest of ₹17,822 under Section 50(1) was legally payable. Instead, considering the nature of the discrepancies, the assessee’s explanation and the reasons for non-participation, the Court granted a conditional opportunity for fresh adjudication.

Therefore, the judgment should not be represented as a final ruling that ITC on all insurance, repair, machinery-related or transport-vehicle rental services is universally allowable. The precise effect of the order is that the ex parte assessment was directed to be set aside upon compliance with the 25% disputed-tax deposit condition, followed by fresh consideration in accordance with law.

Sections Involved

Section 73 of the CGST/TNGST framework – Determination of tax not paid, short paid, erroneously refunded, or ITC wrongly availed or utilised in cases other than fraud, wilful misstatement or suppression of facts.

Section 17(5) of the TNGST Act, 2017 – Blocked credits; central to the dispute concerning alleged ineligible ITC of ₹18,49,218.

Section 50(1) – Interest liability; invoked in relation to alleged late reporting of invoices and the disputed interest amount of ₹17,822.

Article 226 of the Constitution of India – Constitutional writ jurisdiction under which the petitioner sought a writ of certiorarified mandamus.

Link to download the order -
https://www.mytaxexpert.co.in/uploads/1783070222_436compressed.pdf

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