Facts of the Case

The petitioner, Vel Engineering Services, challenged the assessment order dated 24.12.2025 passed by the Assistant Commissioner under Section 73 of the Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act) for the tax period April 2021 to March 2022.

The assessment disallowed the Input Tax Credit (ITC) claimed by the petitioner on the ground of default committed by the supplier. The petitioner contended that a detailed reply had already been submitted to the show cause notice on 26.11.2025, but the respondent failed to consider the reply and passed the assessment order without granting an opportunity of personal hearing.

Accordingly, the petitioner approached the Madras High Court seeking quashing of the assessment order and a direction for fresh adjudication after considering its reply and granting a personal hearing.

Issues Involved

  1. Whether ITC can be denied solely because of the supplier's default.
  2. Whether an assessment order passed under Section 73 without granting personal hearing violates the principles of natural justice.
  3. Whether the assessment order deserved to be remanded for fresh consideration.

Petitioner's Arguments

  • The petitioner argued that the ITC was disallowed solely due to the supplier's alleged default, which could not automatically result in denial of credit to the purchaser.
  • It was submitted that a detailed reply had already been filed against the show cause notice, but the respondent failed to consider the same.
  • The petitioner further contended that no opportunity of personal hearing was provided before passing the assessment order.
  • Reliance was placed on the judgment in M/s D.Y. Beathel Enterprises vs State Tax Officer, wherein the Madras High Court held that the purchaser should not automatically be penalized for the supplier's default.

Respondent's Arguments

  • The Department contended that it is the responsibility of the assessee to establish the genuineness of the transactions by producing necessary documentary evidence.
  • It was argued that merely alleging supplier default would not absolve the petitioner from proving eligibility of ITC.
  • The respondent further submitted that since the petitioner had not effectively utilized the opportunities available during assessment proceedings, the writ petition was not maintainable after the assessment order had attained finality.

Court Order / Findings

The Madras High Court observed that the petitioner had relied upon the earlier Division Bench judgment in D.Y. Beathel Enterprises, which held that the purchaser cannot automatically be made liable merely because of the supplier's default.

The Court further found that the petitioner had not been granted an effective opportunity of personal hearing before passing the impugned assessment order.

Accordingly, the Court held that the principles of natural justice required fresh adjudication and passed the following directions:

  • The assessment order dated 24.12.2025 was set aside.
  • The matter was remanded to the Assistant Commissioner for fresh consideration.
  • The petitioner was permitted to file additional replies and supporting documents.
  • The respondent was directed to reconsider the matter independently in accordance with law after providing an effective opportunity of personal hearing.

Important Clarification

  • Denial of ITC merely because of supplier default cannot be automatic without proper examination of facts.
  • Assessment proceedings under Section 73 must comply with the principles of natural justice.
  • Failure to provide an opportunity of personal hearing can render the assessment order liable to be set aside.
  • During remand proceedings, the assessee is entitled to produce additional evidence in support of its ITC claim.
  • Authorities must independently examine the purchaser's evidence before confirming any demand.

Section Involved

  • Section 73 of the Tamil Nadu Goods and Services Tax Act, 2017
  • Article 226 of the Constitution of India

Link to Download the Order- https://mytaxexpert.co.in/uploads/1784628392_1790compressed.pdf

Disclaimer

This article is intended solely for educational and informational purposes. It is based on the judgment delivered by the Hon'ble High Court. Readers are advised to refer to the complete judgment and seek professional advice before acting upon the legal principles discussed herein. While due care has been taken in preparing this summary, it has also been compiled with the assistance of AI tools for better readability and research support.