Facts of the Case

Tvl. Janaki Transport challenged an order dated 19.12.2025 passed under Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017 (in Form GST DRC-07), along with a consequential rectification order in Form GST DRC-08 dated 09.02.2026. The demand arose because the petitioner had reported 'nil' turnover in its GSTR-1 and GSTR-3B returns, while an inspection revealed an actual turnover of Rs. 4,91,12,602 that had not been reported. The petitioner's explanation was that the transactions fell under the reverse charge mechanism, so the tax liability rested on the service recipient rather than the petitioner, and the 'nil' turnover entry was an inadvertent error rather than a deliberate suppression, especially since the transactions were duly reflected in the petitioner's Form GSTR-9 reconciliation statement.

Issues Involved

  1. Whether invocation of Section 74 of the TNGST Act (which requires an element of fraud or wilful suppression) was justified merely because 'nil' turnover was reported for reverse-charge transactions.
  2. Whether the impugned order should be quashed for the petitioner's failure to avail an opportunity of personal hearing, and if so, on what terms the matter should be remanded.

Petitioner's Arguments

  • There was no wilful suppression; the 'nil' turnover reporting was an error, since liability under the reverse charge mechanism rests on the recipient, not the supplier.
  • Even the show-cause notice did not contain any averment of wilful suppression or wilful short payment of tax, making invocation of Section 74 (as opposed to Section 73) unjustified.
  • The reconciliation statement in Form GSTR-9, filed even before inspection, reflected these transactions as turnover, showing there was no concealment.

Respondent's Arguments

  • Even under the reverse charge mechanism, turnover must be reported; otherwise it escapes disclosure entirely, and if the recipient too fails to report it, there is revenue loss.
  • The discrepancy came to light only through departmental inspection, justifying invocation of Section 74; the petitioner had an alternate remedy of statutory appeal and could not bypass it via a writ petition.

Court Order / Findings

  • The Court held that the transactions ought to have been disclosed as turnover, with the reverse-charge claim raised as an explanation rather than by simply marking the return 'nil' — this was an error on the petitioner's part.
  • On whether this was 'wilful' suppression (necessary to sustain Section 74) or a mere error, the Court noted the petitioner had not availed the personal hearing that was offered, even though a reply was filed, and that one more opportunity should be given.
  • Since the petitioner claimed there would be no actual tax incidence on it (given the reverse charge mechanism), the Court held that the normal condition of a 25% pre-deposit for granting a fresh opportunity was not necessary in this case.
  • The impugned order dated 19.12.2025 and the rectification order dated 09.02.2026 were quashed and the matter remanded for fresh consideration, with the petitioner directed to file additional reply and avail personal hearing within two weeks.

Important Clarification

This case is a useful reminder for GST-registered transport and other reverse-charge suppliers: even where tax liability legally falls on the recipient, turnover from such supplies must still be correctly reported (not marked 'nil') in GSTR-1/GSTR-3B — an inspection-triggered mismatch can invite Section 74 proceedings, and the taxpayer's best defence is showing the transactions were already disclosed elsewhere (such as in GSTR-9) and availing every opportunity of personal hearing offered by the department.

Sections Involved

  • Section 74, Tamil Nadu Goods and Services Tax Act, 2017 — determination of tax not paid by reason of fraud, wilful misstatement or suppression.
  • Article 14 and 19(1)(g), Constitution of India, 1950 — grounds of constitutional challenge.
  • Form GST DRC-07 (summary of demand order) and Form GST DRC-08 (summary of rectification/withdrawal order) — the impugned orders.
  • Reverse Charge Mechanism under the Central Goods and Services Tax Act, 2017 and TNGST Act, 2017.

Decision – In Favour of

Decided substantially in favour of the petitioner, Tvl. Janaki Transport; the impugned orders were quashed and the matter remanded for a fresh personal hearing, without a final ruling on whether the original suppression was wilful.

Case Details

  • Court: Madurai Bench of the Madras High Court
  • Case No.: W.P.(MD) No. 11573 of 2026 (with W.M.P.(MD) No. 8820 of 2026)
  • Coram: Hon'ble Mr. Justice D. Bharatha Chakravarthy
  • Date of Order: 21 April 2026

Link to Download the Order

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