Facts of the Case

Indian Traders challenged the impugned order dated 15.09.2025, which was an assessment order passed under Section 74 of the TNGST Act, 2017.

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

The discrepancies forming the basis of the assessment included:

  1. Non-submission of records for verification of ITC claimed in GSTR-3B; and
  2. ITC availed on inward supplies from bill traders / non-existing taxpayers / registration-cancelled taxpayers.

The impugned proceedings also involved penalty under Section 74 and interest under Section 50 of the GST Act.

The petitioner explained that the records could not be produced because of the illness of the chief auditor, although proper bills and other records were maintained.

Regarding the disputed ITC, the petitioner contended that the purchases were supported by proper tax invoices involving collection of GST as contemplated under Section 31 of the GST Act and Rule 36 of the GST Rules.

The petitioner further explained that a part-time accountant had failed to notice the proceedings and that communications, summons, notices and orders had been uploaded on the web portal. According to the petitioner, inability to access the web portal resulted in the ex parte order.

The petitioner also sought consequential relief concerning the freezing of its current bank account.

Issues Involved

The principal issues involved were:

  1. Whether the ex parte assessment order dated 15.09.2025 passed under Section 74 of the TNGST Act, 2017 should be sustained when the petitioner had not effectively participated in the assessment proceedings.
  2. Whether the petitioner should be granted a fresh opportunity to produce records for verification of ITC claimed in GSTR-3B.
  3. Whether ITC allegedly availed on inward supplies from bill traders, non-existing taxpayers or registration-cancelled taxpayers required fresh examination on the basis of the petitioner’s invoices and supporting records.
  4. Whether the petitioner’s contention that purchases were supported by proper tax invoices under Section 31 of the GST Act and Rule 36 of the GST Rules required consideration on merits.
  5. Whether penalty under Section 74 was justified in the alleged absence of fraud, wilful suppression or misstatement of facts.
  6. Whether interest under Section 50 of the GST Act was sustainable in the facts asserted by the petitioner.
  7. Whether the petitioner’s explanation for non-participation—namely failure of the part-time accountant to notice portal-uploaded proceedings and inability to access the web portal—justified another opportunity.
  8. Whether attachment of the petitioner’s bank account could continue after the impugned assessment order was set aside.

Petitioner’s Arguments

The petitioner submitted that, regarding the alleged non-submission of records for verification of ITC claimed in GSTR-3B, the records could not be produced because of the illness of the chief auditor.

It was contended that the petitioner nevertheless maintained proper bills and other relevant records and should therefore be permitted to place them before the assessing authority.

Regarding ITC availed on inward supplies from bill traders, non-existing taxpayers or registration-cancelled taxpayers, the petitioner contended that the purchases were covered by proper tax invoices with collection of GST as provided under Section 31 of the GST Act and Rule 36 of the GST Rules.

The petitioner further contended that, in the absence of fraud, wilful suppression and misstatement of facts, levy of penalty under Section 74 and interest under Section 50 did not arise in the facts of the case.

As regards failure to participate in the assessment proceedings, the petitioner explained that the part-time accountant failed to notice issuance of the proceedings. It was also submitted that communications, summons, notices and orders were uploaded on the web portal and that the petitioner could not access the portal, resulting in issuance of the ex parte order.

Respondents’ Arguments

The learned Additional Government Pleader represented the Revenue before the Court.

The judgment records that the Court heard both the learned counsel for the petitioner and the learned Additional Government Pleader representing the Revenue.

The Court considered the nature of the discrepancies, the explanation offered by the assessee on merits, and the reasons advanced for not availing the earlier opportunities.

The judgment does not record any separate detailed counter-argument by the Revenue beyond the appearance and hearing of the learned Additional Government Pleader. Accordingly, no additional argument should be attributed to the respondents beyond what is expressly reflected in the order.

Court’s Findings

The Madras High Court considered:

  • the nature of the discrepancies noted in the assessment;
  • the explanation provided by the assessee on merits; and
  • the reason given before the Court for not availing the earlier opportunity.

After considering these aspects, 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.

The Court observed that such opportunities had been extended on equitable grounds, but under appropriate conditions.

Accordingly, the Court granted an opportunity subject to the condition concerning 25% of the disputed tax amount.

The Court then specifically recorded that 4% towards the demand of IGST, 31% towards CGST and 41% towards SGST had already been recovered. In view of the recoveries already made, the impugned order dated 15.09.2025 was set aside and the matter was remanded to the respondent.

Court Order / Final Directions

The writ petition was allowed on the following terms:

  1. Since 4% towards the demand of IGST, 31% towards CGST and 41% towards SGST had already been recovered, the impugned order dated 15.09.2025 was set aside.
  2. The matter was remanded back to the file of the respondent.
  3. The assessee was directed to appear before the respondent within four weeks of receiving the web copy of the order, without fail.
  4. The assessee was directed to submit its reply and documents in support of its claim.
  5. The respondent was directed to consider the matter afresh and pass orders in accordance with law.
  6. 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.
  7. No costs were awarded.
  8. The connected miscellaneous petition was closed.

Important Clarification

The High Court did not finally decide the petitioner’s ITC entitlement on merits.

The Court also did not finally determine whether ITC claimed in respect of inward supplies from bill traders, non-existing taxpayers or registration-cancelled taxpayers was legally admissible.

Likewise, the Court did not finally adjudicate whether penalty under Section 74 or interest under Section 50 was ultimately payable.

The substantive disputes were remitted for fresh consideration by the assessing authority after permitting the petitioner to submit its reply and supporting documents.

A particularly important aspect of the order is that the Court considered the assessee’s explanation for non-participation together with the nature of the discrepancies and granted a fresh opportunity on equitable grounds.

Further, the judgment records both the Court’s reference to a condition concerning 25% of the disputed tax amount and, in the operative directions, the fact that recoveries had already been made to the extent of 4% of IGST demand, 31% of CGST demand and 41% of SGST demand. These figures should be reproduced exactly as recorded in the judgment and should not be reinterpreted.

The bank account attachment was lifted as a consequence of the setting aside of the impugned assessment order.

Sections Involved

·         Section 74 of the TNGST Act, 2017 — Provision under which the impugned assessment order was passed; the petitioner also disputed penalty in the absence of alleged fraud, wilful suppression or misstatement of facts.

·         Section 50 of the GST Act — Provision concerning interest, disputed by the petitioner in the facts of the case.

·         Section 31 of the GST Act — Relied upon by the petitioner in support of the contention that purchases were covered by proper tax invoices with collection of GST.

·         Rule 36 of the GST Rules — Relied upon by the petitioner concerning documentary requirements and the ITC claim.

·         Article 226 of the Constitution of India — Constitutional provision under which the writ petition was instituted.

·         Form GST DRC-08 — The petitioner’s prayer referred to the impugned order in Form GST DRC-08 dated 15.09.2025 bearing Reference No. ZD3309251056981.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1783504440_1477compressed.pdf

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