Facts of the Case

The petitioner, Tvl. K.R.K. Timbers, engaged in the business of timber and exempt firewood, challenged an ex parte assessment order passed under Section 73 of the TNGST Act for Assessment Year 2020-21. The department alleged excess availment of Input Tax Credit (ITC) amounting to ₹13,01,251 due to mismatch between GSTR-3B and GSTR-2A. It was further alleged that the petitioner had wrongly availed common ITC attributable to exempt firewood turnover without reversing the same under Section 17 of the GST Act.

The assessment proceedings were conducted through the GST portal. As the petitioner failed to respond to notices, an ex parte assessment order was passed raising tax, interest, and penalty. Aggrieved by the order, the petitioner approached the Madras High Court seeking quashing of the assessment and remand for fresh adjudication.

 

Issues Involved

  1. Whether an ex parte assessment passed under Section 73 without effective participation of the assessee deserves to be set aside.
  2. Whether alleged ITC mismatch between GSTR-3B and GSTR-2A requires verification of supporting documents before disallowing ITC.
  3. Whether separate maintenance of accounts for taxable and exempt supplies requires reconsideration before invoking Section 17 for ITC reversal.
  4. Whether principles of natural justice warrant remand where sufficient explanation is offered for non-participation in assessment proceedings.

 

Petitioner's Arguments

The petitioner submitted that:

  • It is engaged in trading taxable timber and exempt firewood (HSN 4401).
  • Separate accounts were maintained for taxable and exempt supplies.
  • No ITC was claimed on purchases relating to exempt firewood transactions.
  • The mismatch between GSTR-3B and GSTR-2A arose because certain suppliers mistakenly reported transactions as B2C instead of B2B, resulting in eligible ITC not appearing in GSTR-2A.
  • Valid tax invoices, purchase registers, books of account, reconciliation statements, and supplier confirmations were available to establish the genuineness of the ITC claim.
  • The department failed to verify these records before concluding that the ITC was ineligible.
  • The petitioner could not participate in the proceedings because GST compliance had been entrusted to a part-time accountant, who failed to monitor the GST portal and did not inform the petitioner about the notices or hearing dates, resulting in an ex parte order without an effective opportunity of hearing.

 

Respondent's Arguments

The department contended that:

  • The petitioner had availed excess ITC of ₹13,01,251 based on mismatch between GSTR-3B and GSTR-2A.
  • The petitioner failed to reverse common ITC attributable to exempt firewood turnover under Section 17 of the GST Act.
  • Despite opportunities provided through the GST portal, the petitioner failed to participate in the assessment proceedings.
  • Consequently, the assessment under Section 73, along with demand of tax, interest, and penalty, was validly passed.

 

Court Order / Findings

The Madras High Court observed that:

  • The petitioner had furnished a plausible explanation both regarding the alleged discrepancies and the reasons for non-participation in the assessment proceedings.
  • Considering the nature of the dispute and the explanation offered, one more opportunity should be granted to the assessee to submit documents and explanations before the assessing authority.
  • Since the commodity involved, namely firewood, is an exempt commodity under GST, the Court deemed it appropriate to grant relief without imposing any pre-deposit or other conditions.
  • The impugned assessment order dated 07.02.2025 was set aside.
  • The matter was remanded to the assessing authority for fresh adjudication after considering the petitioner's reply and supporting documents.
  • Any bank attachment made pursuant to the impugned assessment order was directed to be lifted.
  • The assessing authority was directed to pass fresh orders strictly in accordance with law after granting adequate opportunity to the petitioner.

 

Important Clarification

This judgment reiterates that:

  • Mere mismatch between GSTR-2A and GSTR-3B cannot automatically result in denial of ITC without verification of supporting records.
  • Separate maintenance of accounts for taxable and exempt supplies must be properly examined before invoking Section 17 for reversal of ITC.
  • Ex parte GST assessments may be interfered with where the assessee establishes sufficient cause for non-appearance.
  • Courts continue to uphold the principles of natural justice by granting an effective opportunity of hearing, particularly where genuine documentary evidence is available.
  • Attachment of bank accounts based solely on an assessment order cannot survive once such assessment is set aside.

 

Sections Involved

  • Section 73, Tamil Nadu Goods and Services Tax Act, 2017
  • Section 17, Central Goods and Services Tax Act, 2017
  • Article 226 of the Constitution of India

Link to download the order-https://mytaxexpert.co.in/uploads/1783925582_402compressed.pdf

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