GST assessment order set aside as department failed to account for partial tax payment made through electronic credit ledger

Case Title: Tvl. Prabha Drug House v. Assistant Commissioner (ST) (FAC), Hosur North II Circle & Anr.
Court: Madras High Court
Petition No.: W.P. No. 19602 of 2025
Date of Judgment: 29.05.2025
Category: Input Tax Credit – Reconciliation of GSTR-1 and GSTR-3B – Bank Garnishee Attachment
Relevant Sections: Section 73 of the CGST Act, 2017; Rule 142 of the CGST Rules, 2017

Facts (Para 1–2):

The petitioner, Tvl. Prabha Drug House, challenged the order dated 07.05.2024 passed by the Assistant Commissioner (ST) confirming the entire tax demand arising from an alleged mismatch between the petitioner’s GSTR-1 and GSTR-3B returns for FY 2017–18. The petitioner contended that 58% of the differential tax had already been paid by debiting the electronic credit ledger. Despite this, the department confirmed the full demand without acknowledging such remittance.

Questions for Consideration (Para 1–3):

Whether the assessing authority could confirm the entire tax liability under Section 73 of the CGST Act without granting credit for the portion already discharged through the electronic credit ledger and without proper consideration of the petitioner’s reply to the show cause notice.

Observations (Para 4):

The Hon’ble Court noted from the impugned order that the department confirmed the entire proposed demand and ignored the fact that 58% of the tax had already been remitted through ITC utilization. The Court found merit in the petitioner’s contention that such payment was not duly considered. The State’s counsel also conceded that the matter may require reconsideration.

Judgment (Para 5–6):

The Court held that since the authority failed to account for the payment made through the electronic credit ledger, the impugned assessment order dated 07.05.2024 was liable to be set aside. The matter was remanded to the assessing authority for de novo consideration after giving the petitioner an opportunity of being heard. Consequently, the bank attachment initiated against the petitioner (as a garnishee action) was ordered to be lifted.

Between Fine Lines:

This judgment reinforces that GST authorities must recognize payments made through the electronic credit ledger before finalizing tax demands. Ignoring such remittances vitiates the proceedings under Section 73. For taxpayers, this serves as a reminder to furnish proof of ledger utilization clearly during adjudication and ensure that departmental orders reflect such credit adjustments.

Table of Cases Referred

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