Personal Hearing Lapse in S. 74 GST Demand on B2C Sales Entry Error in GSTR 1: Madras HC quashes Order [Read Order]

The Madras High Court quashed a Goods and Services Tax ( GST ) demand order issued under Section 74, triggered by a mistaken entry of B2C sales in GSTR 1. It quashed the GST Assessment order on grounds that it lacked personal hearing and also remanded the matter on 10% pre-deposit at request of the Department pleader.

The petitioner, Kandasamy Sivaprakash, a retailer, sought to quash Assessment Order and a communication issued to the second respondent. He had filed his returns for the financial year 2018-2019, accurately detailing his outward and inward supplies, input tax credit ( ITC ) availed, and taxes paid.

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However, he received a Show Cause Notice on January 29, 2022, alleging discrepancies between GSTR 1, GSTR 2A, and GSTR 3B. The notice demanded a tax payment of ₹75,14,995, warning that failure to comply would lead to proceedings under Section 74 for escaped turnover.

In response, the petitioner clarified in a reply dated March 27, 2024, that the discrepancies were due to a mistaken entry of B2C sales in GSTR 1, urging the authorities to drop the demand. Despite this, the first respondent- Assistant Commissioner ( ST ) proceeded to issue the assessment order, directing the petitioner to pay ₹53,88,494 by July 24, 2024.

The petitioner later filed a rectification petition on July 18, 2024, asserting that his turnover for 2018-2019 was erroneously recorded as ₹2,47,94,015 instead of ₹8,752.82 in the B2C section of GSTR 1 for March 2019.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

He argued that the tax demand was grossly disproportionate to his actual turnover. Meanwhile, while the rectification petition was pending, the first respondent sent a communication on September 25, 2024, to the bank labelling the petitioner a tax defaulter and leading to the freezing of his bank account on October 3, 2024.

The petitioner’s counsel contended that the assessment order violated principles of natural justice by failing to consider the reply or provide a personal hearing. The freezing of the bank account severely impacted the petitioner’s business, prompting him to seek judicial intervention.

In response, the Additional Government Pleader requested that the matter be remanded to the first respondent, conditioned upon the petitioner paying 10% of the disputed tax amount. After considering the arguments, the court agreed that the lack of a personal hearing warranted quashing the assessment order.

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

Hearing the submissions of the both sides, Justice Krishnan Ramamsamy set aside the assessment order and the communication to the second respondent ( the bank ). The matter was remanded the matter back to the first respondent for fresh consideration, contingent upon the petitioner paying 10% of the disputed amount.

It stated that “As far as this case is concerned, without providing an opportunity of personal hearing to the petitioner, the first respondent has passed the impugned assessment order. Therefore, this Court is of the opinion that the impugned assessment order passed by the first respondent is liable to be quashed and it is just to afford an opportunity of personal hearing to the petitioner to put forth his case.”

Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here

The Assistant Commissioner ( ST ) was ordered to review the petitioner’s response, afford him a personal hearing, and issue a new order based on the merits of the case. Furthermore, since the assessment order had been quashed, the court ordered the immediate lifting of the bank account freeze, directing the bank to restore the petitioner’s access upon receiving proof of payment.

To Read the full text of the Order CLICK HERE

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