Facts of the Case

Tvl. Punithan Stores was assessed under Section 73(9) read with Rule 142(5) for tax period 2021-22 via an order dated 28.06.2025, preceded by a show cause notice in DRC-01 dated 18.04.2025. The impugned order itself recorded inward supply of Rs.7,92,795/- and outward supply of Rs.10,45,600/-, with output tax of Rs.1,85,301/- shown as adjusted against ITC of Rs.1,74,219/- and the balance Rs.12,888/- paid in cash. Despite this, the order proceeded to raise a fresh demand of Rs.5,41,760/- in tax, interest and penalty across IGST, CGST and SGST, without properly appropriating the amount already recovered. The petitioner explained non-participation in the proceedings by stating that the matter had been entrusted to an accountant who failed to inform him.

Issues Involved

  1. Whether a Section 73 assessment order that fails to properly account for and appropriate tax amounts already recovered from the assessee can be sustained.
  2. Whether the petitioner's non-participation in the original proceedings, attributed to his accountant's failure to inform him, warranted a remand rather than outright dismissal or an unconditional quashing.

Petitioner's Arguments

  • The order itself recorded that Rs.1,85,301/- of output tax liability had already been adjusted through ITC and cash payment, yet the demand raised in the order did not reflect this adjustment, resulting in a duplicated and inflated demand.
  • The petitioner's failure to participate in the show cause proceedings was not deliberate but arose from his accountant's failure to inform him of the notice.
  • The order deserved to be quashed and the matter reconsidered with the amounts already paid properly credited.

Respondent's Arguments

  • The Additional Government Pleader represented the respondent in the proceedings; the record did not reflect any specific justification offered for the failure to appropriate the recovered amount against the fresh demand.

Court Order / Findings

  • The Court noted that while it would ordinarily direct a 25% pre-deposit of the disputed tax before remanding a matter following an ex parte order, here it found that a sum of Rs.1,85,301/- had already been recovered from the petitioner but not duly adjusted.
  • Balancing the interests of both sides, the Court quashed the impugned order and remitted the matter back to the respondent, treating the impugned order as an addendum to the original show cause notice in DRC-01.
  • The petitioner was directed to file a reply within 30 days, following which the respondent was directed to pass a fresh order on merits within two months, after affording due opportunity.

Important Clarification

  • A GST assessment order that raises a fresh demand without properly adjusting amounts already recovered from the assessee against the same liability is liable to be quashed for improper appropriation, independent of any natural-justice defect in the underlying proceedings.
  • Where amounts have already been recovered and only require correct appropriation, courts may dispense with the usual pre-deposit condition otherwise imposed while remanding matters arising from ex parte assessment orders.

Sections Involved

  • Section 73(9), TNGST/CGST Act, 2017 — provision for determination of tax and passing of the demand order following adjudication.
  • Rule 142(5), CGST Rules, 2017 — requires summary of the order to be uploaded electronically in Form GST DRC-07.
  • Form GST DRC-01, CGST Rules, 2017 — summary of the show cause notice preceding the impugned order, treated on remand as the operative notice.

Decision – In Favour of

The decision is in favour of the assessee (Tvl. Punithan Stores). The order was quashed and remanded for fresh consideration, ensuring the previously recovered tax amount is properly appropriated.

Case Details

Madurai Bench of Madras High Court; W.P(MD)No.23286 of 2025 and W.M.P(MD)Nos.18297 & 18299 of 2025; Coram: Hon'ble Mr. Justice C. Saravanan; Order dated 28.08.2025.

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