GST input tax credit mismatch (GSTR-2A vs GSTR-3B) and extended limitation u/s74-assessment order quashed, remanded after 10% deposit.

The dominant issue was whether the demand invoking the extended limitation under s.74 of the TNGST Act, premised on mismatch between GSTR-2A and GSTR-3B, could stand when the SCN and reasoning were unclear. The HC held that determination of extended limitation and tax liability required a proper merits reply by the taxpayer, combined with legal submissions, which had not been adequately placed before the authority. Consequently, the impugned order was quashed and the matter remitted to the assessing authority for fresh consideration, subject to the taxpayer depositing 10% of the disputed tax from the electronic cash ledger within 30 days; the writ petition was disposed of.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the impugned GST adjudication order confirming tax, interest and penalty could be sustained when the taxpayer's reply to the show cause notice raised only limited legal objections and did not address the allegations on merits, including the factual basis for invoking the extended period under Section 74.

(ii) Whether the Court should exercise writ jurisdiction to quash and remit the matter for fresh adjudication, and if so, on what conditions (including pre-deposit, filing of a comprehensive reply, timelines, and consequences for bank account attachment and recovery).

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Sustainability of the adjudication in light of the taxpayer's non-merits reply and challenge to Section 74 limitation

Legal framework (as discussed): The Court noted that the demand comprised tax along with interest under Section 50 and penalty under Section 74 of the GST enactments, and that the taxpayer's challenge included an objection to invocation of the extended period of limitation under Section 74.

Interpretation and reasoning: The Court found that, in response to the show cause notice, the taxpayer had confined the reply to a "legal plea" (finality based on earlier proceedings having been dropped) and did not deal with the merits of the allegations in the later show cause notice. The Court held that, because the taxpayer failed to respond on the factual allegations and did not explain the asserted mismatch circumstances at the adjudication stage, the authority was effectively left with no option but to confirm the demand on the material before it. The Court further reasoned that assessment of whether invocation of the extended limitation under Section 74 was justified required a proper, combined reply on merits along with legal submissions; without such a reply, the limitation challenge could not be properly evaluated.

Conclusion: The Court concluded that the taxpayer's writ challenge could not be accepted on the footing of limitation alone, in the absence of an appropriate reply on merits addressing the allegations underpinning Section 74 invocation; a merits-based response was necessary to test the legality of extended limitation in the circumstances.

Issue (ii): Remand/quashing with conditions, and ancillary directions on pre-deposit, reply, time limits, bank attachment and recovery

Legal framework (as applied in relief): The Court exercised its discretion in writ jurisdiction to set aside the impugned order and remit the matter, while imposing conditions to secure the revenue and enable adjudication "on merits and in accordance with law."

Interpretation and reasoning: The Court took note that the taxpayer approached the Court "almost immediately" after the impugned order. To enable a fair merits adjudication (including the taxpayer's explanation that mismatch between GSTR-2A and GSTR-3B arose due to technical synchronization issues affecting IGST credit), the Court directed a remand but conditioned it on a partial pre-deposit and a comprehensive reply with supporting documents. The Court also structured the remand by treating the impugned order as an addendum to the show cause notice, requiring the taxpayer to respond accordingly. To balance enforcement with compliance, the Court linked lifting of bank attachment to the mandated pre-deposit and clarified that attachment would be lifted only if no other arrears existed beyond the impugned demand. The Court also preserved the department's right to recover if conditions were not met, while requiring due notice before any such steps.

Conclusions: The Court quashed the impugned order and remitted the matter to the tax authority, subject to: (a) deposit of 10% of the disputed tax from the electronic cash ledger within 30 days; (b) filing, within the same time, a detailed reply to the show cause notice with supporting documents, treating the impugned order as an addendum; (c) fresh final order on merits preferably within three months of such compliance; (d) automatic vacation of bank attachment upon compliance, limited by the clarification that it would be lifted only on the 10% deposit and absence of other arrears; and (e) liberty to the department to recover as if the writ were dismissed in limine if the taxpayer defaulted, subject to prior due notice.

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