Madras HC Quashes GST Assessment Order for Lack of Statutory Backing on “Best Judgment” under Section 74
Case Reference: M/s. Amritha Marketing & Ors. vs. The Joint Commissioner of CGST & Central Excise Court: Madurai Bench of Madras High Court Order Date: November 26, 2025 Judge: Hon’ble Mr. Justice G.R. Swaminathan
1. Executive Summary The Madras High Court has allowed a batch of writ petitions filed by wholesale dealers, quashing the GST assessment orders passed by the Joint Commissioner. The Court ruled that the tax authorities cannot resort to “Best Judgment Assessment” (extrapolating data) while demanding tax under Section 74 of the CGST Act, 2017, as the section does not explicitly confer such powers.
2. Background & Facts
- The Allegation: The petitioners (wholesale dealers in groceries and FMCG) were accused of grossly under-reporting their sales turnover in GST returns.
- The Investigation: Search operations were conducted, and computer systems/billing documents were seized. A private agency (FDI Labs) retrieved sales data from these devices.
- The Assessment: The department found data for only a limited period. However, they extrapolated this data to cover the entire assessment period using the “best judgment” method and issued orders under Section 74 (invoked for fraud/suppression).
- The Challenge: The petitioners challenged the orders on two grounds:
- Violation of natural justice due to the denial of cross-examination of the data retriever.
- Lack of jurisdiction to use “best judgment assessment” under Section 74.
3. Key Issues Before the Court
- Issue 1: Does the rejection of the request to cross-examine the technical staff who retrieved the data amount to a violation of principles of natural justice?
- Issue 2: Can the proper officer resort to “Best Judgment Assessment” (extrapolation of turnover) when proceedings are initiated under Section 74 of the CGST Act?
4. Court’s Analysis & Ruling
On Cross-Examination (Ruling for Revenue): The Court rejected the petitioners’ claim that natural justice was violated. It noted that the petitioners had admitted in their statements (recorded under Section 70) that the data retrieved was entered by them. Since they did not dispute the veracity of the data itself, denying cross-examination of the technician caused no prejudice.
On Best Judgment Assessment under Section 74 (Ruling for Taxpayer): The Court ruled in favor of the petitioners, quashing the assessment orders based on the following legal principles:
- Statutory Limitation: “Best Judgment Assessment” is expressly provided for only under Sections 62 and 63 (for non-filers or unregistered persons). Section 74 contains no such provision authorizing the officer to assess tax to the “best of his judgment.”
- Strict Interpretation: Taxing statutes must be construed strictly. The power to assess must flow directly from the statute; it cannot be implied. The omission of “best judgment” powers in Section 74 is deemed conscious and deliberate by the legislature.
- Legislative Intent: The Court referred to the 6th GST Council Meeting (2016), where it was clarified that the Tax Department can raise demands only to the extent of available evidence and cannot legally sustain extrapolation of data.
- Conclusion: Without express statutory backing, the proper officer lacked jurisdiction to extrapolate turnover and perform a best judgment assessment under Section 74.
5. Court’s Warning to Taxpayers While the assessment was quashed, the Court issued a stern warning. If taxpayers claim that foundational accounts are unavailable (forcing the department to use best judgment), they risk prosecution for failing to maintain accounts for the mandatory six-year period as required by law. The Court used the “Bat family” fable to illustrate that taxpayers cannot take contradictory stands—claiming they have no data to avoid accurate tax assessment while simultaneously arguing against best judgment assessment.