Facts of the Case

The petitioner, Tvl. P. Rengasamy, a works contractor, approached the Madurai Bench of the Madras High Court under Article 226 of the Constitution of India challenging an assessment order dated 18 July 2025 passed by the respondent under Section 74 of the TNGST Act, 2017.

The impugned assessment order had been passed ex parte, as the petitioner had not utilised the opportunities provided during the assessment proceedings.

The principal discrepancy alleged by the department related to an 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 recorded in the detailed table appearing on page 3 of the judgment, the petitioner’s explanation was that the works executed had been properly reported and tax had been paid. According to the petitioner, in the case of works executed for Government departments, the transactions could be reported by the Government departments in Form GSTR-7 only upon release of funds, together with deduction and payment of TDS at 2%, thereby resulting in the alleged variation across different periods.

Regarding non-participation in the assessment proceedings, the petitioner explained that the part-time accountant failed to notice the proceedings, the petitioner was unable to access the web portal, and although the show-cause notice had been issued through RPAD, the accountant, due to pressure of work, failed to consult and file a reply, resulting in the ex parte assessment order.

Issues Involved

The principal issues before the High Court were:

  1. Whether the ex parte assessment order passed under Section 74 of the TNGST Act, 2017 deserved interference where the petitioner had failed to participate in the assessment proceedings but subsequently offered reasons for such failure.
  2. Whether the alleged mismatch between GSTR-1, GSTR-3B and GSTR-7 required fresh consideration in light of the petitioner’s explanation regarding delayed reporting of Government contract transactions and TDS by Government departments.
  3. Whether Section 74 could be invoked without establishing fraud, wilful misstatement, or suppression of facts with intent to evade tax.
  4. Whether a further pre-deposit condition should be imposed for granting remand when 23% of the disputed tax amount had already been recovered.
  5. Whether attachment of the petitioner’s bank account pursuant to the impugned assessment order could continue after the assessment order itself was set aside.

Petitioner’s Arguments

The petitioner contended that the alleged mismatch between the TDS tax reflected in Form GSTR-7 and the turnover reported through GSTR-1 and GSTR-3B did not represent actual suppression of taxable turnover.

It was argued that:

  • the works executed by the petitioner had been properly reported;
  • the applicable tax had been paid;
  • in Government works contracts, the contractor may report the work in the relevant period, whereas the concerned Government department may report the transaction in GSTR-7 only when funds are released;
  • Government departments deduct and pay GST TDS at 2%, and the timing difference in such reporting was stated to be the reason for the alleged mismatch.

On the invocation of Section 74, the petitioner specifically contended that fraud, wilful misstatement, or suppression of facts with an intent to evade tax must be established before the provision can be validly invoked.

As regards failure to participate in the proceedings, the petitioner explained that the part-time accountant had failed to notice the proceedings, the petitioner could not access the web portal, and the reply to the show-cause notice was not filed despite service through RPAD because the accountant failed to take necessary action due to work pressure.

Respondent’s Arguments

The respondent Revenue was represented by the learned Additional Government Pleader.

The Revenue’s position, as emerging from the judgment, was that the assessment had been made ex parte because the petitioner did not utilise the opportunities provided during the assessment proceedings. The impugned order proceeded on the discrepancies identified by the department, including the mismatch involving GSTR-1, GSTR-3B and GSTR-7, along with consequential proceedings concerning penalty under Section 74 and interest under Section 50.

The judgment does not record any elaborate separate counter-submissions by the respondent beyond the Revenue’s representation and the fact that the assessment had followed the petitioner’s non-utilisation of the opportunities granted. Accordingly, no argument beyond what is expressly reflected in the judicial order should be attributed to the respondent.

Court Order / Findings

The Madras High Court considered:

  • the nature of the discrepancies noted by the department;
  • the explanation offered by the assessee on merits; and
  • the reasons advanced for failure to avail the opportunities during the original assessment proceedings.

The Court held that an opportunity could be granted to the assessee to place submissions and relevant supporting documents before the assessing officer.

The Court importantly observed that, while such opportunities are extended on equitable grounds, they are ordinarily made subject to appropriate conditions.

The High Court further noted that it normally grants such an opportunity by imposing a condition requiring deposit of 25% of the disputed tax. However, in the present case, 23% of the disputed tax amount had already been recovered. Therefore, the Court imposed no additional deposit condition.

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

  • Since 23% towards the CGST and SGST demand had already been recovered, the impugned assessment order dated 18 July 2025 was set aside.
  • The matter was remanded to the respondent assessing authority for fresh consideration.
  • The assessee was directed to appear before the respondent within four weeks from receipt of the web copy of the High Court’s order and submit a reply along with supporting documents.
  • The respondent was directed to consider the matter afresh and pass orders in accordance with law.
  • Since the assessment order had been set aside, any attachment of the bank account made pursuant to the impugned order was directed to stand raised.
  • No costs were awarded, and the connected miscellaneous petition was closed.

Important Clarification

1. The High Court did not decide the GSTR mismatch dispute finally on merits

The Court did not conclusively hold that the petitioner’s explanation regarding the mismatch between GSTR-1, GSTR-3B and GSTR-7 was correct. The matter was remanded so that the assessee could produce replies and supporting documents and the assessing officer could decide the matter afresh.

2. The Court did not finally rule that Section 74 was invalidly invoked

Although the petitioner argued that fraud, wilful misstatement, or suppression with intent to evade tax must be established for invoking Section 74, the High Court did not record a final merits determination quashing the proceedings solely on that legal ground. The order was set aside and remanded after considering the discrepancies, the merits explanation, and the reasons for non-participation.

3. The 23% recovery was crucial to the conditional relief

The Court expressly noted its normal practice of requiring a 25% deposit of disputed tax while granting another opportunity on equitable grounds. Since 23% had already been recovered, no additional condition was imposed in this case.

4. Bank account attachment automatically lost its basis after setting aside the assessment order

The Court specifically directed that any bank account attachment made pursuant to the impugned assessment order would stand raised because the underlying assessment order had itself been set aside.

5. Relief was opportunity-based, not an adjudication of tax liability

The judgment restores the petitioner’s opportunity to contest the assessment. It does not amount to a final declaration that no tax, interest, or penalty is payable.

Sections / Legal Provisions Involved

·         Section 74 of the TNGST Act, 2017 / corresponding GST framework — Proceedings relating to tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilised by reason of fraud, wilful misstatement, or suppression of facts.

·         Section 50 of the GST Act — Interest on delayed payment of tax.

·         Article 226 of the Constitution of India — Constitutional writ jurisdiction of the High Court.

·         Form GSTR-1 — Statement relating to outward supplies.

·         Form GSTR-3B — Summary return involving declaration and discharge of GST liability.

·         Form GSTR-7 — Return connected with tax deducted at source under GST.

Link to download the order - https://mytaxexpert.co.in/uploads/1784612901_1487compressed.pdf

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