In a recent ruling, the Madras High Court reaffirmed the principle of natural justice in tax adjudication by granting the assessee another opportunity for re-adjudication where it had shown genuine willingness to cooperate and partially comply with the disputed tax demand. The judgment underscores the importance of procedural fairness and the need to provide reasonable opportunities for taxpayers to present their case.
🏛️ Case Name & Citation
Tvl. P. Rajesekaran v. State Tax Officer (Roving Squad‑II)
Madras High Court, reported at [2025] 175 Taxmann 1031.
⚠️ Factual Background
- A surprise GST inspection was conducted at the petitioner’s premises under Section 167 TN GST Act.
- Authorities noted discrepancies in outward supplies and Input Tax Credit (ITC) claims, leading to notices against the petitioner.
- A show‑cause notice was issued, but the assessee—unaware of the proceedings—did not respond or appear, and wasn’t served proper hearing notices. The demand order surfaced only when the assessee’s bank account was frozen.
💬 Assessee’s Arguments
- The petitioner contended they were unaware of the show‑cause notice and demand order, which had not been served through proper channels—emails were uploaded unnoticed, and no bank freeze warning was given .
- Only upon bank freezing did they learn of the demand.
- Once informed, the assessee expressed willingness to cooperate fully and offered a pre-deposit of 10% of the disputed tax amount as a gesture of good faith .
⚖️ Court’s Analysis & Rationale
- Madras HC held that the principles of natural justice were breached, as the assessee wasn’t given proper notice of hearing or the demand order .
- Recognizing the genuine willingness to cooperate and the 10% pre-deposit, the Court found it fair to allow re-adjudication in the interest of justice.
📄 Order & Directions
The High Court set aside the demand order and remanded the case with these directions:
- Deposit 10% of the disputed tax within 15 days of receiving the Court’s order.
- Permissible to file a reply to the show-cause notice within the same period.
- The department must offer a fresh hearing, after which a reasoned re-adjudication order must be issued within three months.
📌 Significance for Taxpayers & Authorities
- The decision reaffirms that natural justice—specifically the right to be heard—is non-negotiable, even in tax matters.
- Courts can act with equity and balance, permitting taxpayers to remedy procedural mistakes by timely depositing a fraction of disputed tax.
- It sets a potential roadmap for taxpayers: if unaware of proceedings but ready to cooperate, a token 10% deposit can re-open adjudication avenues.
✅ Conclusion
This judgment offers a strong precedent for taxpayers genuinely unaware of assessment actions but ready to engage proactively. It shows courts support fair and reasonable mechanisms over punitive inaction—especially where the assessee shows intent to comply.