Facts of the Case

The petitioner, Tvl. P. Rengasamy, a works contractor registered under GST, challenged the assessment order dated 25.07.2025 passed by the Deputy State Tax Officer-2 under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act). The assessment was completed ex parte on the ground that the petitioner failed to respond to the notices issued during the assessment proceedings.

The assessment primarily arose due to an alleged mismatch between Form GSTR-1, Form GSTR-3B, and Form GSTR-7 (TDS returns), resulting in tax demand along with interest and penalty. The petitioner approached the Madras High Court seeking quashing of the assessment order on the ground that it violated statutory provisions and principles of natural justice.

Sections Involved

  • Section 74 of the CGST/TNGST Act, 2017 – Determination of tax involving fraud, wilful misstatement or suppression of facts.
  • Section 50 of the CGST/TNGST Act, 2017 – Interest on delayed payment of tax.
  • Article 226 of the Constitution of India – Writ Jurisdiction of the High Court.

Issues Involved

  1. Whether the assessment order passed under Section 74 without granting an effective opportunity of hearing was legally sustainable.
  2. Whether mismatch between GSTR-1, GSTR-3B and GSTR-7 automatically justified invocation of Section 74.
  3. Whether the assessee deserved another opportunity to explain the discrepancies despite non-participation in assessment proceedings.
  4. Whether recovery already made from the assessee should influence the conditions for remand.

Petitioner's Arguments

The petitioner submitted that:

  • The mismatch between GSTR-7 (TDS returns) and GSTR-1/GSTR-3B occurred because Government departments often report TDS only after release of funds, leading to timing differences in reporting.
  • All works executed had been properly reported and corresponding GST had been paid.
  • Mere mismatch in reporting could not justify proceedings under Section 74, which requires proof of fraud, wilful misstatement or suppression of facts with intent to evade tax.
  • The petitioner failed to participate in the proceedings because:
    • the part-time accountant failed to notice the proceedings,
    • the petitioner could not access the GST portal,
    • although the show cause notice was served through RPAD, the accountant failed to file a reply due to workload.
  • Therefore, the assessment deserved to be set aside and remanded for fresh consideration.

Respondent's Arguments

The Department contended that:

  • Adequate opportunities had been provided to the petitioner during assessment proceedings.
  • Since no reply was filed and no appearance was made, the assessing authority rightly completed the assessment ex parte under Section 74.
  • The assessment was based on discrepancies noticed between statutory GST returns and available departmental records.

Court Order / Findings

The Madras High Court observed that:

  • The petitioner had placed a plausible explanation regarding the mismatch between GSTR-7 and GSTR-1/GSTR-3B, particularly in Government contracts where TDS reporting may occur only after release of funds.
  • The Court also considered the reasons assigned for non-participation in the assessment proceedings.
  • In the interest of justice, another opportunity should be granted to enable the assessee to produce supporting documents before the assessing authority.
  • The Court noted that in similar cases it ordinarily directs deposit of 25% of the disputed tax as a condition for remand.
  • However, since 51% of the disputed CGST and SGST demand had already been recovered, the Court found that no further deposit was necessary.

Accordingly, the Court:

  • Set aside the assessment order dated 25.07.2025.
  • Remanded the matter to the assessing authority for fresh adjudication.
  • Directed the petitioner to appear before the authority within four weeks from receipt of the web copy of the order and file a detailed reply along with supporting documents.
  • Directed that any bank attachment made pursuant to the impugned assessment order shall stand lifted after setting aside the order.

Important Clarification

The judgment reiterates that:

  • Proceedings under Section 74 require allegations involving fraud, wilful misstatement or suppression of facts with intent to evade tax, and such provisions should not be invoked mechanically.
  • Differences between GSTR-1, GSTR-3B and GSTR-7 may arise due to timing differences, especially in Government contracts where TDS is reported after release of funds.
  • High Courts may exercise writ jurisdiction to restore an opportunity of hearing where an assessment has been completed ex parte, particularly when sufficient recovery has already been made and the assessee demonstrates bona fide reasons for non-participation.
  • Where substantial recovery has already been effected, the Court may dispense with the usual requirement of additional pre-deposit while remanding the matter.

Link to Download the Order https://mytaxexpert.co.in/uploads/1784874637_1944compressed.pdf

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