Facts of the Case

The petitioner, Tvl. V.N.S. Construction, challenged the assessment order dated 29.01.2026 passed under Section 74A of the Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act). The assessing authority alleged suppression of turnover based on differences between Form GSTR-7 (TDS deductions) and Form GSTR-3B for the Assessment Year 2024-25, treating the amounts reflected in GSTR-7 as additional taxable turnover and raising a tax demand of ₹31,39,032/- along with applicable interest and penalty.

The petitioner contended that the services were rendered to the TWAD Board under operation and maintenance contracts relating to public water supply schemes. According to the petitioner, such services were exempt from GST under Entry No. 3 of Notification No. 12/2017-Central Tax (Rate) as pure services provided to a Government Authority in relation to functions entrusted under Articles 243G and 243W of the Constitution of India. The petitioner further submitted that the contract itself specifically mentioned that GST was not applicable.

The petitioner also explained that all notices and hearing intimations were uploaded only on the GST portal. Being a small contractor, GST compliance had been entrusted to a part-time accountant, who failed to inform the petitioner about the proceedings. Additionally, the proprietor was undergoing treatment for cervical health complications and could not personally monitor the GST portal, resulting in an ex-parte assessment.

 

Issues Involved

  1. Whether differences between Form GSTR-7 and Form GSTR-3B alone can justify an allegation of suppression of turnover under Section 74A of the TNGST Act.
  2. Whether services rendered to the TWAD Board under operation and maintenance contracts for public water supply schemes qualify for exemption under Notification No. 12/2017-Central Tax (Rate).
  3. Whether an ex-parte assessment order can be sustained when the assessee could not participate in the proceedings due to genuine reasons.
  4. Whether the assessee should be granted an opportunity of personal hearing before finalizing the assessment.

 

Petitioner's Arguments

The petitioner submitted that:

  • The services were provided to the TWAD Board under operation and maintenance contracts for public water supply schemes.
  • Such services constituted pure services provided to a Government Authority and were exempt under Entry No. 3 of Notification No. 12/2017-Central Tax (Rate).
  • The work order and bid documents clearly stated that GST was not applicable to the contract.
  • Form GSTR-7 is only a TDS reporting statement and cannot independently determine taxability or establish suppression of turnover.
  • The assessing authority failed to examine the exemption notification, contractual documents and the actual nature of services before raising the tax demand.
  • The petitioner missed the proceedings because GST compliance had been entrusted to a part-time accountant who failed to communicate the notices uploaded on the GST portal, and the proprietor was also undergoing medical treatment during the relevant period.

 

Respondent's Arguments

The Revenue contended that:

  • There was a mismatch between Form GSTR-7 and Form GSTR-3B.
  • The differential amount reflected in GSTR-7 represented suppressed taxable turnover.
  • Since the petitioner failed to respond to the notices or participate in the assessment proceedings, the assessment was rightly completed ex-parte under Section 74A of the TNGST Act.

 

Court Order / Findings

The Madras High Court observed that:

  • Considering the nature of the discrepancies, the explanation offered by the assessee and the reasons for non-participation, the petitioner deserved one more opportunity to present its case.
  • The Court specifically noted that the petitioner claimed the services rendered were exempt from GST, making it appropriate to grant an opportunity without imposing any pre-condition.
  • The impugned assessment order dated 29.01.2026 was set aside.
  • The matter was remanded to the assessing authority for fresh adjudication.
  • The petitioner was directed to appear before the assessing authority and file detailed objections along with supporting documents.
  • The respondent was directed to pass a fresh order in accordance with law after considering all materials.
  • Since the assessment order was set aside, any attachment of the petitioner's bank account pursuant to the assessment was also directed to be lifted.

 

Important Clarification

The judgment reiterates the following important legal principles:

  • A GSTR-7 and GSTR-3B mismatch alone cannot automatically establish suppression of turnover without examining the actual nature of the transaction.
  • Authorities must verify whether the supplies are covered by any statutory exemption before confirming tax liability.
  • Ex-parte assessments should not be sustained where genuine reasons prevented participation and substantial justice requires another opportunity.
  • Courts may grant unconditional remand where the dispute involves a prima facie claim of statutory GST exemption.
  • Consequential recovery proceedings, including bank attachment, cannot survive once the assessment order is set aside.

 

Sections Involved

  • Section 74A, Tamil Nadu Goods and Services Tax Act, 2017
  • Article 226, Constitution of India
  • Entry No. 3, Notification No. 12/2017-Central Tax (Rate)
  • Articles 243G & 243W, Constitution of India
  • Forms GSTR-7 and GSTR-3B

 

Link to download the Order-https://www.mytaxexpert.co.in/uploads/1783928105_406compressed.pdf

 

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.