Facts of the Case

The petitioner, Indian Traders, challenged an assessment order dated 15.09.2025 passed under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017, along with the consequential freezing of its bank account.

The assessment had been completed ex parte after the petitioner failed to participate in the assessment proceedings. The tax authorities alleged various discrepancies, including non-production of records for verification of Input Tax Credit (ITC), ITC claimed from bill traders/non-existing or cancelled taxpayers, and consequential levy of tax, interest, and penalty.

The petitioner sought quashing of the assessment order and directions to defreeze its bank account.

Issues Involved

  1. Whether the ex parte assessment order passed under Section 74 was liable to be set aside.
  2. Whether the petitioner deserved another opportunity to produce records and explain the alleged ITC discrepancies.
  3. Whether attachment/freezing of the petitioner's bank account could continue after setting aside the assessment.
  4. Whether the assessment required reconsideration on merits.

Petitioner's Arguments

The petitioner submitted that:

  • Records for verification of ITC could not be produced because the chief auditor was ill, although proper invoices and supporting records were maintained.
  • ITC had been availed on genuine purchases supported by valid tax invoices issued in accordance with the GST Act and Rules.
  • Since there was no fraud, wilful suppression, or misstatement, levy of interest under Section 50 and penalty under Section 74 was unjustified.
  • The part-time accountant failed to notice the proceedings because all notices, summons, communications, and orders were uploaded only on the GST portal, resulting in non-participation and the ex parte assessment.
  • Therefore, the assessment deserved to be reopened by granting an effective opportunity of hearing.

Respondent's Arguments

The Revenue contended that:

  • The petitioner had failed to utilise the opportunities provided during assessment proceedings.
  • The assessment was completed after noticing discrepancies relating to ITC claims and non-production of records.
  • Since the petitioner did not participate despite statutory opportunities, the assessment order was validly passed under Section 74.

Court Order / Findings

After considering the explanations offered by the petitioner and the nature of the alleged discrepancies, the Madras High Court held that the assessee deserved one more opportunity to establish its claim by producing supporting documents.

The Court observed that it has consistently granted such opportunities on equitable grounds subject to appropriate conditions.

Accordingly, the Court:

  • Set aside the assessment order dated 15.09.2025.
  • Remanded the matter to the Assessing Officer for fresh consideration.
  • Recorded that 4% of the IGST demand, 31% of the CGST demand, and 41% of the SGST demand had already been recovered, making any further deposit unnecessary.
  • Directed the petitioner to appear before the Assessing Officer within four weeks from receipt of the web copy of the order and file all replies and supporting documents.
  • Directed the Assessing Officer to reconsider the matter independently and pass a fresh order in accordance with law.
  • Ordered that any attachment or freezing of the petitioner's bank account arising from the impugned assessment shall automatically stand lifted.
  • Closed the connected miscellaneous petition without costs.

Important Clarification

The judgment reiterates that:

  • Ex parte GST assessments can be interfered with where the assessee provides a reasonable explanation for non-participation.
  • Courts may grant another opportunity for adjudication where substantial justice requires reconsideration.
  • Once the assessment order is set aside, bank attachment or account freezing based solely on that assessment cannot continue.
  • Production of proper invoices and supporting documents remains crucial for establishing entitlement to Input Tax Credit during fresh adjudication.

Sections Involved

  • Section 74 – Determination of tax involving fraud, wilful misstatement or suppression of facts.
  • Section 50 – Interest on delayed payment of tax.
  • Section 31 – Tax Invoice.
  • Rule 36 of the GST Rules – Documentary requirements for availing Input Tax Credit.
  • Article 226 of the Constitution of India – Writ Jurisdiction of High Courts.

Link to Download the Order https://mytaxexpert.co.in/uploads/1784874628_1943compressed.pdf

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