Facts of the Case

Tvl. P. Rengasamy, a works contractor, filed the writ petition under Article 226 of the Constitution of India challenging the assessment order dated 25.07.2025 passed under Section 74 of the TNGST Act, 2017.

The petitioner sought quashing of the impugned assessment order on the ground that it was without jurisdiction and in clear violation of statutory provisions.

The assessment had been made ex parte because the petitioner did not utilise the opportunities provided during the assessment proceedings.

The principal discrepancy identified by the assessing authority was an alleged output mismatch between Form GSTR-1 and Form GSTR-3B vis-à-vis Form GSTR-7.

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

As reflected in the table on page 3 of the judgment, the petitioner explained that whatever work had been executed was properly reported and tax had been paid. The petitioner attributed the alleged variation to the timing of reporting by Government departments in Form GSTR-7 and deduction of TDS at 2%, particularly upon release of funds.

The petitioner further explained that a part-time accountant failed to notice the proceedings, the petitioner could not access the web portal, and although the show cause notice had been issued through RPAD, the part-time accountant, due to pressure of work, failed to consult and file a reply. This resulted in the ex parte assessment order.

Issues Involved

The principal issues involved were:

  1. Whether the ex parte assessment order dated 25.07.2025 passed under Section 74 of the TNGST Act, 2017 should be sustained when the petitioner had not effectively participated in the proceedings.
  2. Whether the alleged output mismatch between Form GSTR-1, Form GSTR-3B and Form GSTR-7 required fresh examination after considering the petitioner’s explanation and supporting documents.
  3. Whether the timing difference in reporting transactions by Government departments in Form GSTR-7, particularly upon release of funds and deduction of TDS at 2%, could explain the alleged mismatch.
  4. Whether invocation of Section 74 was sustainable without establishing fraud, wilful misstatement or suppression of facts with intent to evade tax.
  5. Whether interest under Section 50 of the GST Act was sustainable in the facts of the case.
  6. Whether the petitioner’s reasons for non-participation—failure of the part-time accountant to notice proceedings, inability to access the web portal, and failure to respond to the RPAD show cause notice—justified another opportunity.
  7. Whether an additional pre-deposit condition was necessary when 51% of the disputed tax amount had already been recovered.
  8. Whether any bank account attachment pursuant to the impugned assessment order could continue after the assessment order was set aside.

Petitioner’s Arguments

The petitioner submitted that, regarding the alleged difference between TDS tax reported in Form GSTR-7 and the figures in GSTR-1 and GSTR-3B, whatever work had been executed was properly reported and tax was paid.

The petitioner explained that work executed for Government departments would normally be reported in the relevant years, whereas Government departments, in many cases, reported transactions in Form GSTR-7 and paid TDS tax at 2% only upon release of funds.

According to the petitioner, this timing difference was the reason for the alleged variation.

The petitioner further contended that, for invocation of Section 74 of the GST Act, fraud, wilful misstatement or suppression of facts with an intent to evade tax had to be established.

Regarding failure to participate in the proceedings, the petitioner explained that:

  • the part-time accountant failed to notice issuance of the proceedings;
  • the petitioner was unable to access the web portal; and
  • even though the show cause notice was issued through RPAD, the part-time accountant, due to pressure of work, failed to consult and file a reply.

According to the petitioner, these circumstances resulted in issuance of the ex parte impugned order.

Respondent’s Arguments

The learned Additional Government Pleader represented the Revenue.

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

The Court thereafter considered the nature of the discrepancies, the explanation offered by the assessee on merits, and the reasons given for not availing the opportunity during the assessment proceedings.

The judgment does not record any separate detailed substantive counter-argument on behalf of the Revenue. Therefore, no argument beyond what is expressly contained in the order should be attributed to the respondent.

Court’s Findings

The Madras High Court considered:

  • the nature of the discrepancies noted;
  • the explanation provided by the assessee; and
  • the reasons advanced before the Court 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 respondent assessing officer.

The Court observed that it had been extending such opportunities on equitable grounds, subject to appropriate conditions.

The Court further recorded that it would normally grant such an opportunity by imposing a condition to deposit 25% of the disputed tax.

However, in the present case, 51% of the disputed tax amount had already been recovered.

Therefore, the High Court expressly held that no additional condition was required to be imposed.

Court Order / Final Directions

The writ petition was allowed on the following terms:

  1. Since 51% towards the demand of CGST and SGST amount had already been recovered, the impugned assessment order dated 25.07.2025 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 alleged GSTR-1, GSTR-3B and GSTR-7 mismatch on merits.

The Court also did not finally adjudicate whether the petitioner’s explanation concerning delayed reporting by Government departments in Form GSTR-7 upon release of funds and deduction of TDS at 2% was correct in law or fact.

Similarly, the Court did not finally determine whether the conditions for invocation of Section 74—including fraud, wilful misstatement or suppression of facts with intent to evade tax—were established.

The substantive tax dispute was remitted to the assessing authority for fresh consideration after permitting the petitioner to file a reply and supporting documents.

A significant feature of the order is the Court’s treatment of the amount already recovered. The Court specifically observed that it normally grants a fresh opportunity subject to deposit of 25% of the disputed tax, but because 51% of the disputed tax amount had already been recovered, it imposed no additional condition.

The lifting of bank account attachment followed from the setting aside of the impugned assessment order.

Sections Involved

·         Section 74 of the TNGST Act, 2017 / GST Act — Provision under which the impugned assessment order was passed; the petitioner contended that fraud, wilful misstatement or suppression of facts with intent to evade tax should be established for its invocation.

·         Section 50 of the GST Act — Provision concerning interest, forming part of the disputed proceedings.

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

·         Form GSTR-1 — Relevant to the alleged output mismatch.

·         Form GSTR-3B — Relevant to the alleged output mismatch.

·         Form GSTR-7 — Relevant to TDS reporting and the alleged mismatch; the petitioner attributed the variation to reporting by Government departments upon release of funds and deduction of TDS at 2%.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1783504648_1478compressed.pdf

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