M/s Amritha Marketing vs. The Joint Commissioner Of CGST & C.Ex. [W.P. No. 1380 Of 2025] Dated 26 November 2025

Madras HC held that in the absence of an express provision permitting best judgment assessment in Section 74, tax liability cannot be determined through extrapolation

BRIEF FACTS OF THE CASE

• The Petitioner operates as a wholesale dealer engaged in the supply of groceries and Fast-Moving Consumer Goods items in Madurai. These businesses came under the scrutiny of the GST authorities when the Respondent received information that the Petitioner had been underreporting their sales turnover in their GST returns.
• Pursuant to this information, search operations were conducted at the premises of the Petitioners. During the course of these search operations, the investigating officers seized computer systems that were being used by the Petitioner for billing purposes, as well as physical documents containing sales data. Following the seizure, statements of various people, including the manager, accountant, software supplier, customers and others, were recorded under Section 70 of the CGST Act, 2017. The proprietors of the respective establishments were also arrested during this process.
• Subsequently, show cause notices dated 29.06.2024 were issued under Section 74 of the CGST Act proposing tax demands for different financial years together with penalty and interest. The Petitioner submitted his reply to the show cause notices, and an enquiry was held by the Respondent authorities.
• During the adjudication proceedings, it emerged that the Respondents were relying on data retrieved by a private agency, M/s. FDI Labs, Chennai, from the electronic devices seized during the search operation. The Petitioner submitted a representation dated 28.10.2024 seeking leave to cross-examine the person from M/s. FDI Labs who had retrieved the data from the seized electronic devices. The Petitioner contended that such cross-examination was necessary to test the veracity and reliability of the data retrieval process and the conclusions drawn therefrom. However, this request for cross-examination was rejected by the Respondent authorities.
• Aggrieved by the rejection of their request for cross-examination, the Petitioner filed writ petitions bearing numbers W.P.(MD) Nos. 1053 to 1056 of 2025, specifically questioning the said orders. However, during the pendency of those writ petitions, the impugned final assessment orders dated 03.02.2025 and 04.02.2025 were passed by the Respondent. Consequently, the earlier writ petitions were dismissed as having become infructuous
• A critical and contentious aspect of the impugned assessment orders related to the methodology adopted by the proper officer in the impugned assessment orders. During the inspection, the officials did not obtain sales data for the entire assessment period. What was retrieved from the electronic devices was data only for a limited period, which the proper officer extrapolated to encompass the entire assessment period by resorting to what is termed "best judgment assessment." The stand of the proper officer was that since sales and turnover data for the entire period had not been made available by the Petitioner, he was compelled to resort to this method of best judgment assessment.
• The Petitioner filed a writ petition before the Hon'ble Madras High Court, and the issue under consideration was whether rejection of the request to cross-examine the persons who retrieved the data amounts to a violation of the principles of natural justice and the Respondent was justified in resorting to best judgment assessment methodology in proceedings under Section 74 of the CGST Act

KEY OBSERVATIONS OF THE HON'BLE MADRAS HIGH COURT

• The Hon'ble Madras High Court held that the order rejecting the request for cross-examination was made during the assessment proceeding and was akin to an intermediate order. Relying on the Kores (India) Ltd. v. Bank of Maharashtra (2009) 17 SCC 674, the Court held that a litigant is not bound to appeal against every interlocutory order passed against him and can wait until the final order is passed and, in an appeal against that final order, challenge the order leading to the final order and affecting that decision. Since the earlier writ petitions questioning the orders rejecting the request for cross-examination were closed as infructuous and the said order was not tested on merits, the Petitioner was at liberty to raise the issue of violation of principles of natural justice once again in these writ proceedings.
• The Court further held that the Petitioner did not have a case for cross-examining the author of the report containing the data recovered from the electronic devices of the Petitioner because the Petitioner had never questioned the veracity of the data retrieved from the systems maintained by them. The retrieval took place very much in their presence, and the Petitioner themselves duly certified the process of retrieval. The Petitioners were examined, and their statements were recorded under Section 70 of the Act, wherein to specific questions they admitted that the data retrieved from the systems was entered by them. Accordingly, the Court held that the request to cross-examine the retriever of data was rightly denied and, in any case, it did not cause any prejudice to the Petitioner.
• The Court observed that the impugned orders had been passed under Section 74 of the Act, but the Court was not able to find any provision under Section 74 conferring the power on the proper officer to assess the liability of the noticee or the assessee to the best of his judgment. The Court noted that the omission in Section 74(9) of conferring power to determine the best judgment of the authority appears to be conscious, and what has been deliberately and consciously left over by the legislature cannot be supplied by the Courts.
• The Court reiterated the well-settled principle that provisions of a taxing statute must be construed strictly, and when the method of assessment has been prescribed, the assessing officer cannot travel beyond the said norms. The Court held that in matters relating to taxation, the principle "what is not prohibited is permitted" cannot be invoked, and there must be a statutory basis for any action to be taken by the assessing officer. The enabling power must flow from the statute. The Court further held that Article 265 of the Constitution not only talks about the levy of tax but also the collection of tax, and levy as well as collection can be done only by the authority of law. The constitutional mandate is therefore that what is not envisaged by law directly cannot be done indirectly in the matter of tax collection.
• The Court also took note of the discussion that took place in the 6th GST Council Meeting wherein when it was suggested to include a clause to permit extrapolation of short levy where the taxpayer was not furnishing the details, the then Commissioner, GST Council explained that the settled legal position was that the Tax Department could raise demand only to the extent that it had evidence and that extrapolation would not stand legal scrutiny. This fortified the conclusion that the omission was conscious and deliberate.
• The Court therefore upheld the contention of the learned counsel for the Petitioner that while passing an order under Section 74 of the CGST Act, 2017, the proper officer cannot resort to best judgment assessment. Without an express statutory provision empowering the proper or assessing officer to resort to best judgment assessment, the authority would not have the jurisdiction to do so. The Court rejected the learned standing counsel's attempt to justify the impugned orders by invoking Rule 31 of the CGST Rules, 2017, observing that this provision pertains to the determination of the value of supply of goods or services which cannot be determined under Rules 27 to 30 and has no relevance to the question posed for consideration. For the foregoing reasons, the Court ordered that the order impugned in these writ petitions stand quashed.

AURTUS COMMENTS

• While recognising cross-examination as an indefeasible right flowing from principles of natural justice, the Court held that the right is not available automatically and the assessee has to make out a specific case for cross-examination and demonstrate prejudice. The well-settled law that principles of res judicata do not apply where earlier writ petitions were closed as infructuous without adjudication on merits was reaffirmed. A clear takeaway is that any requests for cross-examination must identify (a) the witness, (b) what factual aspect is disputed, (c) why that witness's testimony is material, and (d) how denial would prejudice the defence. A generic "allow cross-exam of all persons" plea is unlikely to survive.
• Tax can only be collected by authority of law in terms of Article 265 of the Constitution. Hence, any approach of collecting tax by best judgment must be expressly prescribed by the statute, including the circumstances under which best-judgement can be resorted to. Under the GST laws, the process for best judgment assessment is statutorily prescribed u/s 62 only in cases where a registered person fails to file their periodical tax returns or annual returns even after a notice is served u/s 46. Further, the provisions relating to the best judgment assessment order are deemed withdrawn if the taxpayer furnishes a return within 60 days of such assessment order. The judgment draws a clear distinction between different types of assessments under the Act and reiterates that enabling powers for best judgment must flow from the statute. The Court also relied upon the discussion that took place in the GST Council Meeting to resolve the conscious omission u/s 74(9) to confer the powers for the best judgment.
• The judgment does raise practical concerns for revenue administration in cases where taxpayers, particularly when complete data for the entire assessment period is not available despite best efforts during investigation. The only permissible course is for the authorities to rely strictly on actual material recovered, while ensuring taxpayers cannot take inconsistent positions to evade liability. What the law does not expressly permit cannot be done indirectly through extrapolation or mathematical projection. This is a structural gap that needs to be addressed through policy changes.

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