The Madras High Court has set aside a ₹5.50 crore goods and services tax demand raised against Shree Velu Builders Private Limited, ruling that tax cannot be levied on projected revenue from two building blocks merely because their plans had been approved. Since construction had not commenced in either block, the Court held, the demand could not stand. Justice Krishnan Ramasamy remanded the matter to the State Tax Officer for fresh consideration, subject to the company depositing ₹50 lakh within four weeks.

The disputed order raised a demand of ₹5,50,25,100 based on projected revenue, together with ₹2,40,19,438 towards other liabilities. The case concerned Block Nos. 12 and 13 in a development project that had received planning approval from the Salem Local Planning Authority. Before the High Court, the company contended that the assessment was based solely on that planning approval, despite construction not having commenced. It also argued that it had not been given sufficient opportunity to file a detailed reply before the demand was finalised.

A Demand Built on Plans, Not Bricks

The petitioner’s challenge centered on the gap between planning approval and actual construction. In its submission, Block Nos. 12 and 13 remained unbuilt during the relevant period, and no taxable supply had arisen from them. The projected revenue relied on by the assessing officer was, in the company’s view, a hypothetical figure drawn from the sanctioned plans rather than from any real transaction. GST, it argued, cannot be imposed on a development that exists only on paper.

The State Tax Officer defended the original assessment, maintaining that adequate opportunity had been provided to the assessee. The officer’s position was that the planning approval and the project’s revenue potential justified the demand. The High Court, however, found the company’s factual assertion persuasive. It noted that construction had not commenced in either block. It further found that the company had not been afforded sufficient opportunity to present its defence. In the operative view of the Court, “tax cannot be levied on projected revenue from two building blocks merely because their plans had been approved.”

That conclusion is likely to be watched closely by real estate developers and GST practitioners. Planning permission is often secured long before construction begins, and the interval between approval and the first build can extend across several financial years. The judgment makes clear that an assessment based exclusively on projected revenue, with no construction activity to support it, cannot proceed on that basis alone. It does not, however, decide the ultimate taxability of the project; that question has been left open for the fresh assessment.

Remand with a ₹50 Lakh Deposit

The relief came with conditions. The Court directed the company to file its objections and supporting documents within four weeks. Once those objections are received, the State Tax Officer must consider the submissions, grant a personal hearing, and pass a fresh order on the merits and in accordance with law. The remand is designed to cure both the factual and procedural defects identified by the Court.

At the same time, the Court made the remand subject to a deposit of ₹50 lakh within the stipulated period. The deposit operates as a safeguard for the revenue while the assessment is reopened. If the company does not comply, the benefit of the remand may be lost. The original demand—₹5,50,25,100 on projected revenue plus ₹2,40,19,438 towards other liabilities—remains the backdrop to the fresh proceedings, though its fate will depend on the reassessment.

The personal hearing direction is significant in a case like this. The company’s complaint was not simply about the arithmetic of the demand; it was about the absence of a meaningful chance to set out why the two blocks had not generated taxable revenue. By expressly requiring a hearing, the Court has ensured that the assessee’s explanation will be on record before the tax officer takes a final view.

De-freezing Accounts If Attachment Is Not Lifted

The Court also addressed the practical consequence of the demand: the attachment of the company’s bank accounts. Such attachments are standard recovery measures in GST disputes, but they can disrupt business operations before the underlying liability is finally determined. The Court clarified that “if the tax officer failed to communicate the lifting of the attachment within the stipulated period,” the company could approach the concerned banks directly with proof of payment and a copy of the order to have the accounts de-frozen.

That direction provides an executable remedy if the tax officer does not act. The company no longer needs to seek the High Court’s intervention merely to restore access to its accounts; it can present proof of the deposit and a copy of the order to the banks themselves. The clarity is useful for assessees who face prolonged freezes during remand proceedings.

The case now returns to the State Tax Officer. The company has four weeks to file a detailed response with supporting evidence. The officer must then grant a personal hearing and pass a fresh order on the merits. If the attachment is not lifted and communicated within the stipulated period, the company may approach the concerned banks directly with proof of payment and a copy of the order to have the accounts de-frozen.