Facts of the Case

The petitioner, Tvl.Sri Vinayagar Steels, represented by its partner A. Senthil Athiban, challenged an assessment order dated 29.10.2024 for the assessment year 2017-18, passed under Section 74 of the TNGST Act. The petitioner, previously a Sales Tax assessee under the Tamil Nadu Value Added Tax Act, 2006, had certain unutilised Input Tax Credit under Rule 19 of the TNVAT Rules as on 13.06.2017 but had not filed a TRAN-1 application, and had availed the credit without following the transitional procedure under Section 140 of the TNGST Act. The petitioner also did not reply to the show cause notice preceding the impugned order.

Issues Involved

  1. Whether the impugned Section 74 order, confirming denial of unutilised TNVAT credit claimed without a TRAN-1 filing and without any reply to the show cause notice, should be set aside to allow the petitioner an opportunity on merits.

Petitioner's Arguments

  • The petitioner sought quashing of the impugned Section 74 order and a direction for fresh assessment after affording an opportunity of personal hearing, in gross violation of natural justice as alleged.

Respondent's Arguments

  • The respondents' counsel appeared and were heard, defending the impugned order passed for want of a timely response from the petitioner to the preceding show cause notice.

Court Order / Findings

  • Justice C. Saravanan noted the Court's consistent practice of rescuing similarly placed taxpayers by quashing such orders subject to payment of 25% of the disputed tax as a pre-deposit.
  • The impugned order was quashed and the case remitted for fresh orders de novo on merits, subject to the petitioner depositing 25% of the disputed amount in cash within the stipulated period, with the quashed order to be treated as a corrigendum to the notice that preceded it.
  • The petitioner was directed to file a reply to the show cause notice within thirty days of the deposit, with the respondent to pass fresh orders within three months after hearing the petitioner; non-compliance would result in automatic dismissal of the writ petition, leaving the respondent free to proceed in accordance with law.

Important Clarification

  • The Madras High Court continues to apply a standard 25% pre-deposit formula to set aside ex-parte or merit-confirming GST orders passed on non-response to a show cause notice, treating the quashed order itself as a corrigendum to the notice so the taxpayer can respond afresh, rather than reopening the assessment from scratch.
  • Unutilised state VAT credit not carried forward through a timely TRAN-1 filing under Section 140 cannot simply be self-availed in GST returns; failure to follow the transitional procedure exposes the credit to denial under Section 74.

Sections Involved

  • Section 74, Tamil Nadu Goods and Services Tax Act, 2017 — determination of tax involving fraud, wilful misstatement or suppression.
  • Section 140, TNGST Act, 2017 — transitional arrangements for Input Tax Credit.
  • Rule 19, Tamil Nadu Value Added Tax Rules, 2006 — the pre-GST input credit provision under which the disputed credit had accrued.

Decision – In Favour of

Disposed of with conditional directions, in part in favour of the Assessee — order quashed subject to 25% pre-deposit, with fresh adjudication directed on merits.

Case Details

Court: Madurai Bench of Madras High Court
Case No.: W.P.(MD) No.16075 of 2025 and W.M.P.(MD) Nos.12189 & 12192 of 2025
Coram: Hon'ble Mr. Justice C. Saravanan
Date of Order: 16.06.2025

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