Facts of the Case

The petitioner, M/s. City Markettings, challenged an assessment order dated 26.12.2025 passed under Section 74 of the TNGST Act, 2017 for the assessment year 2018-19. The assessment was based on multiple discrepancies, including unreconciled ITC declared in GSTR-9, non-reversal of ITC relating to supplier credit notes, alleged non-payment of tax under Reverse Charge Mechanism (RCM) on lorry freight expenses, and consequential levy of interest and penalty.

The petitioner contended that detailed explanations had already been submitted before the assessing authority, but the same were not properly appreciated. Aggrieved by the assessment order, the petitioner approached the Madras High Court under Article 226 of the Constitution.

Issues Involved

  1. Whether the assessment order passed under Section 74 was sustainable when the assessee's explanations were allegedly not properly considered.
  2. Whether the petitioner should be granted another opportunity to produce supporting documents.
  3. Whether the assessment deserved to be remanded when the entire tax demand had already been recovered.
  4. Whether consequential attachment of the petitioner's bank account could continue after setting aside the assessment order.

Petitioner's Arguments

  • The alleged excess ITC shown in GSTR-9 arose due to differences between GSTR-3B and GSTR-2A, as certain supplier invoices were not reflected and some suppliers had issued credit notes after filing the relevant returns.
  • Regarding ITC reversal on supplier credit notes, the petitioner submitted that although reversal was not reflected in the specific column of GSTR-3B, the credit note amount had already been adjusted while computing total ITC.
  • In respect of RCM liability on lorry freight, the petitioner argued that freight paid for individual consignments was below the prescribed exemption limit and therefore not liable to GST under RCM.
  • It was further contended that there was no fraud, wilful suppression or misstatement warranting invocation of Section 74, levy of penalty or interest.

Respondent's Arguments

The Revenue contended that:

  • Excess ITC claimed by the petitioner remained unreconciled and therefore demand was rightly confirmed.
  • ITC reversal relating to supplier credit notes was short and accordingly confirmed.
  • No documentary evidence was produced to establish exemption from RCM liability on freight payments.
  • The assessment order had been passed after considering the petitioner's representation and therefore required no interference.

Court Order / Findings

The Madras High Court observed that:

  • Considering the nature of the discrepancies and the explanations offered by the petitioner, an opportunity should be granted to place supporting documents before the assessing authority.
  • Normally, while remanding such matters, the Court directs payment of 25% of the disputed tax as a condition.
  • However, in the present case, 100% of the disputed IGST, CGST and SGST demand had already been recovered.
  • Since the entire disputed tax had already been recovered, no further condition was necessary.
  • The impugned assessment order dated 26.12.2025 was therefore set aside and the matter was remanded to the respondent for fresh adjudication.
  • The petitioner was directed to appear before the assessing authority within four weeks along with all supporting documents.
  • The respondent was directed to pass a fresh order in accordance with law after considering the petitioner's submissions.
  • Any attachment of the petitioner's bank account made pursuant to the impugned assessment order was also ordered to be lifted.

Important Clarification

This judgment reiterates that:

  • Even in proceedings under Section 74, where factual disputes require examination, the assessee should ordinarily be afforded a meaningful opportunity to produce supporting evidence.
  • When the entire disputed tax has already been recovered, the Court may remand the matter without insisting upon any further pre-deposit.
  • Assessment orders passed without proper consideration of the assessee's explanation may be set aside and remanded for fresh adjudication.
  • Bank attachments based on an assessment order automatically lose their basis once such assessment is set aside.

Key Takeaway

The Madras High Court held that where 100% of the disputed GST demand had already been recovered, it was appropriate to set aside the assessment order passed under Section 74 of the TNGST Act and remand the matter for fresh consideration after granting the assessee an effective opportunity to produce supporting documents. The Court also directed removal of the bank attachment arising from the impugned assessment.

Sections Involved

  • Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017 (Determination of tax involving 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
  • Provisions relating to Input Tax Credit (ITC), Reverse Charge Mechanism (RCM) and Credit Notes under the GST law.

Link to Download the Order-https://mytaxexpert.co.in/uploads/1784628236_1789compressed.pdf

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