Madras HC: Govt Contract TDS Mismatch in GSTR-7 – Fresh Adjudication Ordered* _Taxscan.in | Tvl. P. Rengasamy vs Deputy State Tax Officer-2 | FY 2021-22_

[18/05, 13:44] sekarreporter1: https://www.taxscan.in/top-stories/govt-contract-tds-mismatch-in-gstr-7-madras-hc-orders-fresh-adjudication-of-s-74-proceedings-considering-23-tax-recovery-1445784
[18/05, 13:44] Meta AI: *Madras HC: Govt Contract TDS Mismatch in GSTR-7 – Fresh Adjudication Ordered*
_Taxscan.in | Tvl. P. Rengasamy vs Deputy State Tax Officer-2 | FY 2021-22_

*1. What was the case*
*Issue*: GST Dept flagged _output tax mismatch_ for a contractor doing govt works.
– *Contractor’s GSTR-1 & GSTR-3B*: Showed turnover & tax paid.
– *Govt Dept’s GSTR-7*: TDS details didn’t match.

*Dept action*: Initiated _Section 74 proceedings_ under TNGST Act – alleging suppression/fraud. Passed _ex parte order dated 18.07.2025_ with penalties + interest u/s 50, because contractor didn’t reply to notices. e964

*2. Contractor’s explanation*
1. *Timing difference in govt contracts*: Govt depts file GSTR-7 _only after funds are released & TDS deducted_. But contractor reports supply in GSTR-1 when work is executed.
2. *No suppression*: _“All executed works had been properly disclosed and the corresponding taxes duly paid. The discrepancy was merely a timing difference in reporting by the government authorities, not a deliberate suppression of turnover.”_
3. *S.74 ingredients missing*: No fraud, wilful misstatement, or intent to evade tax – mandatory for S.74.
4. *Why no reply*: Depended on part-time accountant for GST compliance. 8763

*3. Madras HC – Madurai Bench ruling*
*Order*: Set aside the ex parte S.74 order. _Remanded for fresh adjudication_. 8763

*Key reasons*:
1. *Common issue in govt contracts*: HC accepted that GSTR-7 mismatches are _“incredibly common”_ due to govt’s delayed reporting.
2. *S.74 vs S.73*: HC reiterated – _S.74 can only be invoked when there is clear allegation of fraud, suppression, or wilful misstatement. If no such allegation is made/established, S.74 is not legally valid_.
3. *23% tax recovery noted*: Court considered that part of tax was already recovered while ordering fresh hearing. 8763a380

*4. Legal takeaway for contractors*
**Point** **Impact**
**GSTR-7 vs GSTR-1 mismatch** Not automatic fraud. If you’ve paid tax & timing difference explained, S.74 may not apply
**S.74 threshold** Dept must prove *intent to evade*. Mere mismatch ≠ suppression
**Ex parte orders** Can be set aside if you show reasonable cause + pay part of disputed tax
**Precedent** Similar relief in *Tvl K M Constructions* – NHAI certificate later proved no supply, HC set aside demand
876352e1

*Bottom line*: For govt contractors, TDS in GSTR-7 often lags GSTR-1. Madras HC says don’t jump to S.74 fraud proceedings. Dept must check facts, and if you’ve actually paid tax, you get fresh hearing. But reply to notices – don’t rely on part-time accountants.

Want the full HC order PDF or steps to reconcile GSTR-7 mismatches before notice comes?