Facts of the Case

The petitioner, Tvl. V.N.S. Construction, challenged the assessment order dated 29.01.2026 passed under Section 74 of the TNGST Act for the Assessment Year 2019-20.

The department alleged suppression of turnover based on differences between the turnover reflected in Form GSTR-7 (TDS deductions) and the turnover reported in GSTR-3B and GSTR-9. Treating the GSTR-7 figures as additional taxable turnover, the department raised a GST demand of ₹19,15,554, along with applicable interest and penalty.

According to the petitioner, the contracts were executed for the Tamil Nadu Water Supply and Drainage (TWAD) Board in relation to operation and maintenance of public water supply schemes, which were specifically exempt from GST under Notification No. 12/2017-Central Tax (Rate). The petitioner further contended that all relevant work orders, bid documents and supporting records had already been submitted during the assessment proceedings, but the assessing authority failed to consider them while passing the impugned order.

 

Issues Involved

  1. Whether differences between Form GSTR-7 and GSTR-3B/GSTR-9 can automatically be treated as suppression of taxable turnover.
  2. Whether services rendered to the TWAD Board were exempt from GST under Notification No. 12/2017-Central Tax (Rate).
  3. Whether an assessment order passed without proper consideration of documents and exemption claims violates the principles of natural justice.
  4. Whether an assessment passed under Section 74 of the TNGST Act deserves to be set aside when the authority fails to examine relevant records.

 

Petitioner's Arguments

The petitioner submitted that:

  • The contracts related to operation and maintenance of public water supply schemes executed for the TWAD Board.
  • Such services were exempt under Notification No.12/2017-Central Tax (Rate).
  • Clause 4.12 of the bid documents specifically provided that GST was not applicable.
  • Form GSTR-7 merely reflects TDS deductions and cannot by itself determine taxability or establish suppression of turnover.
  • Complete work orders, bid documents and exemption-related records for FY 2019-20 had already been furnished before the assessing authority.
  • The respondent incorrectly assumed that no supporting documents had been produced.
  • The assessment order rejected the exemption claim mechanically without examining the contractual nature of services or discussing the evidence submitted.
  • Consequently, the assessment order violated the principles of natural justice.

 

Respondent's Arguments

The department contended that:

  • There was a difference between turnover disclosed in Form GSTR-7 and returns filed in GSTR-3B/GSTR-9.
  • The petitioner failed to satisfactorily explain the discrepancies.
  • The assessment was completed under Section 74 of the TNGST Act after providing opportunities to the petitioner.
  • Since the petitioner allegedly failed to produce relevant documents, the tax demand along with interest and penalty was rightly confirmed.

 

Court Order / Findings

The Madras High Court observed that:

  • The dispute involved the petitioner's claim that the services rendered were exempt from GST.
  • The petitioner had placed reliance upon exemption notification, work orders and supporting records.
  • The assessment order proceeded on an erroneous factual assumption that relevant documents had not been produced.
  • The assessing authority failed to independently examine:
    • the contractual documents,
    • the nature of services rendered,
    • applicability of the exemption notification, and
    • other supporting records.
  • Since the commodity/service involved was claimed to be exempt from GST, the Court considered it appropriate to grant another opportunity.
  • The Court held that the matter deserved fresh adjudication after considering all relevant documents.

Accordingly, the Court:

  • Set aside the assessment order dated 29.01.2026.
  • Remanded the matter back to the assessing authority for fresh consideration.
  • Directed the petitioner to appear before the authority and submit all supporting documents.
  • Directed the respondent to pass a fresh order strictly in accordance with law.
  • Ordered that any attachment of the petitioner's bank account pursuant to the impugned assessment shall stand lifted.
  • No costs were awarded.

 

Important Clarification

This judgment reiterates that:

  • Mere mismatch between Form GSTR-7 and GSTR-3B/GSTR-9 does not automatically establish suppression of turnover.
  • The assessing authority must independently verify the nature of the transaction before confirming tax liability.
  • Exemption notifications must be properly examined after considering contractual documents.
  • Assessment orders cannot ignore documentary evidence already placed on record.
  • Mechanical rejection of exemption claims amounts to violation of the principles of natural justice.
  • Courts may remand matters where relevant evidence has not been considered by the tax authorities.

 

Sections Involved

  • Article 226 of the Constitution of India
  • Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017
  • Notification No. 12/2017-Central Tax (Rate)
  • Principles of Natural Justice

 Link to Download the Order-https://www.mytaxexpert.co.in/uploads/1783926976_405compressed.pdf

 

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