Madras HC Sets Aside GST Demand Order and Permits Fresh Adjudication Subject to 25% Pre-Deposit in MD Signs Case
Overview of the Case
In a recent writ proceeding before the Madras High Court, the matter of MD Signs Vs Deputy State Tax Officer was decided at the initial admission stage itself after both parties consented to the proposed resolution. The assessee had filed the writ petition challenging a demand confirmation order passed by the GST authorities for the financial year 2020-2021.
The central issue revolved around the confirmation of a tax liability that was initially proposed through a Show Cause Notice in Form DRC-01, which was subsequently confirmed without giving proper consideration to the merits of the case due to the assessee's failure to submit any response.
Factual Matrix of the Dispute
The case originated from a Show Cause Notice in DRC-01 dated 25 November 2024, which was issued to the assessee for the assessment period of 2020-2021. The notice proposed a specific tax demand and called upon the assessee to explain why the said amount should not be recovered.
When the assessee failed to file any reply to the Show Cause Notice, the revenue authorities proceeded to pass the impugned order dated 19 February 2025, which confirmed the entire demand proposed in the notice. The confirmation was based primarily on the non-filing of any response by the assessee.
Prior to approaching the Court, the assessee had made a pre-deposit of 10% of the disputed tax amount on 5 November 2025. However, during the course of proceedings, uncertainty arose regarding whether this deposited amount had been appropriately adjusted against the confirmed demand.
Procedural Timeline and Limitation Issues
The writ petition was filed on 8 December 2025, which was significantly after the expiry of the statutory limitation period prescribed under Section 107 of the GST enactments, 2017 for filing an appeal against the demand confirmation order dated 19 February 2025.
The Court took note of this delay and the expiry of the appellate remedy timeline. Despite this procedural impediment, the Court chose to exercise its discretionary jurisdiction in the interest of substantial justice.
Submissions Before the Court
During the hearing, Mr. C. Harsharaj, the learned Special Government Pleader representing the revenue department, accepted notice on behalf of the respondent authority. However, he expressed his inability to confirm whether the amount that was deposited by the assessee on 5 November 2025 had indeed been adjusted or set off against the tax liability that was confirmed in the contested order.
The counsel for the assessee contended that the matter deserved to be decided on merits rather than being confirmed merely on the ground of non-filing of reply to the Show Cause Notice.
Judicial Analysis and Reasoning
The Court observed that although the statutory period for preferring an appeal under Section 107 of the respective GST enactments, 2017 against the impugned order had already lapsed, and the writ petition was filed belatedly on 8 December 2025, justice required that the matter be examined on merits.
The Court noted that it has been consistently following a particular approach in similar circumstances where assessees approach the High Court after the expiry of the appellate limitation period. In line with this established judicial practice, the Court decided to grant relief to the assessee subject to certain stringent conditions.
The primary consideration was to balance the interests of revenue with the right of the assessee to be heard on merits, particularly since the original order was passed ex-parte without considering any submissions from the assessee.