Madras High Court Quashes GST Demand on Pre-GST Works; Directs Fresh Verification of Service Dates.

The Conflict

The Notice: The Petitioner, a contractor for various State Government departments, was served a Show Cause Notice (SCN) under Section 73 for the periods 2017-18 to 2020-21.
The Defense: The Petitioner argued that the demand included tax on works executed prior to July 1, 2017. While the payments were received during the GST era, the services were rendered under the old regime and were often exempt or partially exempt under Notification 25/2012-ST.
The Failure: The Adjudicating Authority ignored this reply and confirmed the demand, leading the Petitioner to challenge the order as a violation of natural justice and a failure to consider the “Time of Supply” rules.

The Judicial Verdict

The High Court set aside the order and remanded the matter for fresh adjudication with the following observations:

1. Point of Taxation vs. Date of Receipt

The Court noted that if a service was rendered prior to the implementation of GST, it is governed by the Finance Act, 1994 (Service Tax) and the respective State VAT Acts. Mere receipt of payment after July 2017 does not automatically trigger a GST liability if the “taxable event” (provision of service) occurred earlier.

2. Partial Exemptions under Service Tax

The Court highlighted that works for Government departments were often covered under specific exemptions (like Notification 25/2012-ST). Applying a blanket GST rate to these old contracts without verifying the date of execution is legally unsustainable.

3. Responsibility of the Taxpayer (The “Particularization” Rule)

In a critical note for practitioners, the Court held that merely attaching annexures to a reply is not enough.

The Petitioner has a duty to “particularize” each transaction.
This means the reply must explicitly explain: “Invoice X relates to Work Order Y, which was completed on Date Z, and therefore falls under the old regime.”
Since the Petitioner had failed to provide this level of detail initially, the Court allowed a second chance to do so during the remand proceedings.

Key Takeaways for Contractors

Legacy Contracts: If you are still receiving “running bill” payments for contracts started before 2017, ensure your accounting clearly distinguishes between pre-GST work and post-GST work.
Time of Supply: Under Section 13 and 14 of the CGST Act, the change in tax regime requires a careful analysis of three dates: (1) Date of provision of service, (2) Date of invoice, and (3) Date of payment. If two out of these three occurred before July 1, 2017, GST generally does not apply.
Drafting the Reply: When responding to an SCN, do not just provide a “data dump” of invoices. Create a Summary Table that maps invoices to work completion certificates to prove they are pre-GST transactions.
Remand Strategy: In remand cases, the taxpayer is usually given 15 to 30 days to file a supplementary reply. This is the final window to produce missing documents like Completion Certificates or VAT/Service Tax returns from 2016-17.

HIGH COURT OF MADRAS

Ramasamy Gounder Prakasam

Joint Commissioner, Goods and Service Tax and Central Excise^*

C.Saravanan, J.

W. P. No. 19259 of 2023
W.M.P. Nos. 18503 & 18504 of 2023

FEBRUARY 5, 2026

M. N. Bharathi for the Petitioner. Sai Srujan Tayi, Senior Panel Counsel for the Respondent.

ORDER

1. Heard learned counsel for the petitioner and the learned Senior Panel Counsel for the respondent.

2. In this Writ Petition, the petitioner has challenged the impugned order in Original Sl.No.03/2023-GST (JC) dated 28.03.2023 passed by the respondent. By the impugned order, the proposal in Show Cause Cum Demand Notice No.109/2022-GST dated 30.09.2022 has been confirmed against the petitioner to which the petitioner filed a reply on 05.11.2022 and 30.01.2023.

3. Operative portion of the impugned order dated 28.03.2023 is reproduced below:

Order

(a) In respect of Central Goods and Service Tax:

(i) I confirm the demand of Rs.1,18,44,675/- (Rupees One Crore Eighteen Lakhs Forty Four Thousand Six Hundred and Seventy Five only) towards the short/not-paid CGST for the period from July 2017 to March 2021 and to recover the same from M/s. Ramasamy Gounder Prakasam (R.Prakasam), Old No. 1/82, New No. 1/202, Masakalipatty, Rasipuram, Namakkal, Tamil Nadu, 637401 under the provisions of Section 74(9) of the CGST Act, 2017;

(ii) I appropriate an amount of CGST of Rs. 17,50,000/- paid by the tax payer as mentioned in Para 17.4. above, towards the part of the tax liability as mentioned in Sl.No.(a)(i) above payable during the period from July 2017 to March 2021 under the provisions of CGST Act, 2017;

(iii) I confirm the demand of interest at the applicable rates on the amount of tax payable as in sl.no.(a)(i) above and to recover the same from M/s. Ramasamy Gounder Prakasam (R.Prakasam), Old No.1/82, New No. 1/202. Masakalipatty, Rasipuram, Namakkal, Tamil Nadu, 637401 under the provisions of Section 74(9) of CGST Act. 2017 read with Section 50 of CGST Act, 2017;

(iv) I impose a penalty of Rs.1,18,44,675/- (Rupees One crore Eighteen Lakhs Forty Four Thousand Six Hundred and Seventy Five only) equivalent to the amount confirmed at sl.no.(a)(i) above under the provisions of Section 74(9) of CGST Act, 2017 read with Section 122(2)(b) of CGST Act, 2017 for suppression of taxable turnover leading to evasion of tax and to recover the same from M/s. Ramasamy Gounder Prakasam (R.Prakasam), Old No.1/82, New No.1/202, Masakalipatty, Rasipuram, Namakkal, Tamil Nadu, 637401;

(v) Since, I have already imposed penalty under Section 122(2)(b) of the CGST Act, 2017/ TNGST Act, 2017, therefore, I refrain from imposing any penalty under Section 122(2)(a) of CGST Act, 2017 / TNGST Act, 2017;

(b) In respect of Tamil Nadu Goods and Service Tax:-

(i) I confirm the demand of Rs.1,18,44,675/- (Rupees One Crore Eighteen Lakhs Forty Four Thousand Six Hundred and Seventy Five only) towards the short/not-paid SGST for the period from July 2017 to March 2021 and to recover the same from M/s. Ramasamy Gounder Prakasam (R.Prakasam), Old No.1/82, New No. 1/202, Masakalipatty, Rasipuram, Namakkal, Tamil Nadu, 637401 under the provisions of Section 74(9) of the TNGST Act, 2017;

(ii) I appropriate an amount of SGST of Rs. 17,50,000/- paid by the tax payer as mentioned in Para 17.4. above, towards the part of the tax liability as mentioned in Sl.No.(b)(i) above payable during the period from July 2017 to March 2021;

(iii) I confirm the demand of interest at the applicable rates on the amount of tax payable as in sl.no.(b)(i), above and to recover the same from M/s. Ramasamy Gounder Prakasam (R. Prakasam), Old No.1/82, New No. 1/202, Masakalipatty, Rasipuram, Namakkal, Tamil Nadu, 637401 under the provisions of Section 74(9) of TNGST Act, 2017 read with Sections 50 of TNGST Act, 2017;

(iv) I impose a penalty of Rs.1,18,44,675/- (One crore Eighteen Lakhs Forty Four Thousand Six Hundred and Seventy Five only) equivalent to the amount confirmed at sl.no. (b)(i) above under the provisions of Section 74(9) of TNGST Act, 2017 read with Section 122(2)(b) of TNGST Act, 2017 for suppression of taxable turnover leading to evasion of tax and to recover the same from M/s. Ramasamy Gounder Prakasam (R.Prakasam), Old No.1/82, New No.1/202, Masakalipatty, Rasipuram, Namakkal, Tamil Nadu, 637401;

(v) Since, I have already imposed penalty under Section 122 (2) (b) of the TNGST Act, 2017, therefore, I refrain from imposing any penalty under Section 122 (2) (a) of TNGST Act, 2017.”

4. The challenge to the impugned order is primarily on the ground that the petitioner has been mulct with tax liability for the tax period 20172018, 2018-2019 and 2019-2020 for the works contract executed for various state Government departments prior to the implementation of GST Enactments with effect from 01.07.2017.

5. It is submitted by the learned counsel for the petitioner that only the payments for such work contract were received by the petitioner after the GST regime came into force with effect from 01.07.2017 which has been ignored by the respondent while passing the impugned order.

6. It is further submitted that the petitioner has paid a sum of Rs.81,57,966/- towards the tax whereas in the impugned order, while confirming the demand, same has not been considered properly. Instead, it is submitted that the impugned order confined to only a sum of Rs.35 lakhs which again has been ignored while giving a finding on Issue No.3.

7. That apart, it is submitted that the petitioner is assessed under the State Authority and that the State Authority has passed an order for the tax period 2020-2021 which covers part of the demand covered by the impugned order.

8. It is further submitted that the State Authority has recently passed an assessment order on 17.02.2025, whereby the demand proposed for the aforesaid tax period has been dropped on the identical amount proposed in the aforesaid Show Cause Cum Demand Notice No.109/2022-GST dated 30.09.2022.

9. The learned Senior Panel Counsel for the respondent submits that the present Writ Petition is devoid of any merits and therefore, liable to be dismissed with cost. It is submitted that the subsequent order passed by the State Authority for the tax period 2020 on 17.02.2025 pursuant to a Show Cause Notice in GST DRC-01 dated 23.11.2024 is itself non-est in the eye of law in view of the recent decision of the Hon’ble Supreme Court in Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East Commissionerate GST 400/101 GSTL 289 (SC)/Special Leave Petition (C) No.6092 of 2025 and therefore submits that the present Writ Petition be dismissed.

10. I have considered the arguments advanced by the learned counsel for the petitioner and the learned Senior Panel Counsel for the respondent.

11. If it is the case of the petitioner that tax was demanded for the services rendered prior to 01.07.2017 for which the petitioner was liable to pay Service Tax and VAT under the provision of Value Added Tax Act, 1994 and Tamil Nadu Value Added Tax Act, 2006 and were exempted partly in terms of Notification No.25/2012-ST dated 20.06.2012 as amended from time to time, the petitioner shall particularize each of the transactions in the reply and substantiate the same with annexure. Mere filing of the annexure is not sufficient.

12. Having considered the submissions made by the learned counsel for the petitioner and the learned Senior Panel Counsel for the respondent and perusing the records before this Court and the replies dated 30.01.2023 and order dated 17.02.2025 passed by the State Authority for the tax period 2020-2021, the impugned order is liable to be set aside.

13. It is accordingly set aside and the case is remitted back to the respondent to pass a fresh order on merits, taking note of the order passed by the State Authority dated 17.02.2025 for the tax period 2020-2021.

14. Since it has been decided to remit the case back, there shall be a direction to the petitioner to file a proper reply to the Show Cause Cum Demand Notice No. 109/2022-GST dated 30.09.2022 by treating the impugned Order-in-Original No.Sl.No.03/2023-GST (JC) dated 28.03.2023 as an addendum to the said Show Cause Notice within a period of (30) thirty days from the date of receipt of a copy of this order.

15. The respondent shall thereafter proceed to pass a final order on merits as expeditiously as possible, within a period of three months from the date of receipt of copy of this order.

16. Needless to state, the petitioner shall be heard before the final order passed on merits.

17. This Writ Petition stands disposed of with the above observations. No costs. Connected Writ Miscellaneous Petitions are closed.