Ex-Parte Assessment Order Involving GSTR Mismatches Set Aside And Remanded Due To Timing Differences In Government TDS Reporting

Ex-Parte Assessment Order Involving GSTR Mismatches Set Aside And Remanded Due To Timing Differences In Government TDS Reporting

Issue

Whether an ex-parte assessment order imposing tax, interest, and Section 74 penalties due to variations between GSTR-1/GSTR-3B and Form GSTR-7 can be sustained when the discrepancy arises because government departments report transactions and deposit TDS only upon the release of public funds.

Facts

• The petitioner is a taxpayer against whom an ex-parte assessment order was passed, imposing interest under Section 50 and penalties under Section 74.

• The tax department initiated the proceedings based on an output tax mismatch discovered between the petitioner’s GSTR-1 and GSTR-3B returns compared against the Form GSTR-7 (TDS returns filed by tax deductors) records.

• The petitioner failed to utilize the personal hearing opportunities or respond to notices during the assessment stage because their part-time accountant failed to notice the issuance of the department’s proceedings.

• In the writ petition, the assessee asserted that all executed works were properly reported and the corresponding tax liabilities were fully paid.

• The petitioner explained that while they report works in the actual year of execution, government departments typically report transactions in Form GSTR-7 and deposit the 2% TDS only when their internal funds are officially released, causing a systemic timing variation.

• Prior to the filing of the writ petition, the tax authorities had already recovered 23% of the total disputed tax demand through enforcement actions.

Decision

• Held, that considering the nature of the accounting discrepancies and the timing explanation provided by the petitioner, an opportunity must be granted to the taxpayer to present their submissions and produce supporting documents.

• Held, that since 23% of the disputed tax demand has already been successfully recovered by the revenue, the impugned ex-parte assessment order is set aside and the matter is remanded for fresh adjudication.

• Held, that the consequential bank account attachments executed under Section 83 pursuant to the quashed assessment order are directed to be lifted immediately. [Matter remanded]

Key Takeaways

• Government TDS Timing Variations: Mismatches between an assessee’s sales returns and a government customer’s GSTR-7 are frequently timing differences rather than tax suppression, as state departments routinely defer TDS logging until funds are released.

• Relief Against Ex-Parte Orders: While negligence by an accountant is not a perfect legal defense, courts will lean towards natural justice and remand a case if the taxpayer has a plausible accounting explanation and a substantial portion of the tax demand has already been recovered.

• Lifting of Bank Attachments: Once an underlying ex-parte assessment order is set aside and the matter is relegated back to the show cause stage, provisional bank attachments under Section 83 lose their legal basis and must be removed.