GSTAT: Section 74 Demand Fails; Matter Must Be Re-determined Under Section 73

M/s Sterling & Wilson Pvt. Ltd., an EPC contractor registered under GST, was issued a demand for FY 2018-19 due to a mismatch between GSTR-1 and GSTR-3B. The Proper Officer invoked Section 74 and raised a demand of Rs. 27.06 lakh (CGST and SGST) with interest and equal penalty, alleging short payment of tax.

The Appellate Authority held that there was no fraud or suppression and converted the proceedings to Section 73. While reducing the penalty to 10% under Section 73(9), it confirmed the tax and interest on the ground that the assessee failed to reconcile the mismatch and substantiate reversal of ITC by recipients in respect of credit notes and adjustments. The assessee filed a second appeal before the GST Appellate Tribunal.

Issue Raised: Whether, in the absence of fraud or suppression, a Section 74 demand could be sustained without proper reconciliation opportunity, and whether the Appellate Authority could convert the proceedings to Section 73 without remanding the matter for fresh determination.

GSTAT’s Ruling: The GST Appellate Tribunal partly allowed the appeal and remanded the matter. It held that once the Appellate Authority concluded that there was no intent to evade tax, the foundation of Section 74 collapsed. In such a situation, Section 75(2) mandates that the tax be re-determined by the Proper Officer as if the notice were issued under Section 73. The Appellate Authority could not itself finalize liability under Section 73 without such re-adjudication.

The Tribunal noted that the dispute stemmed from reconciliation issues involving credit notes, advances, and timing differences during the initial phase of GST implementation.  Therefore, the impugned orders were set aside and the case was remanded to the Proper Officer for re-determination.

To Read Full Judgment, Download PDF Given Below