The Goods and Services Tax Appellate Tribunal (GSTAT) has admitted a department’s appeal involving allegations of non-reversal of Input Tax Credit (ITC) attributable to exempt electricity supplies and alleged suppression of facts and wilful misstatement under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017.

The Bench of Tushsar Kanti Satapathy (Judicial Member) and Bijoy Bihari Mahapatra (Technical Member) observed that the department had prima facie made out arguable grounds warranting consideration by the Tribunal. 

The dispute concerns a registered person engaged in the generation and supply of electricity. According to the Revenue, electricity constituted an exempt supply and consequently the taxpayer was required to reverse proportionate ITC attributable to the exempt supply in the relevant tax periods and subsequently carry out the prescribed adjustment at the end of the financial year.

Buy Now: E-Magazine: 1000+ Landmark GST Judgments (2017–2026)

During the hearing, the Revenue contended that despite making exempt supplies, the respondent continued to avail the entire ITC as “eligible” in Table 4(A) of its GSTR-3B returns from July 2017 to March 2022 without making proportionate reversal of credit attributable to exempt supplies.

The Revenue’s authorised representative argued that the taxpayer was required to reverse the credit attributable to exempt electricity supplies in the same tax period, followed by the applicable adjustment at the end of the financial year. However, according to the Department, this requirement was not followed for several years.

A significant part of the Revenue’s case was based on the manner in which the taxpayer had filled its GSTR-3B returns. The Department pointed out that in certain months the respondent had reversed ITC under Table 4(B) of GSTR-3B.

According to the Revenue, this showed that the taxpayer understood the relevant columns of the return filed under Section 39 of the CGST Act and was aware of the mechanism for reversing ITC. Nevertheless, it allegedly chose not to reverse the proportionate credit attributable to exempt supplies during the relevant tax periods.

The Revenue further sought to distinguish the alleged conduct from an inadvertent or clerical error.

It contended that the continued availment of ITC over a period covering five financial years could not be regarded as an accidental clerical lapse. Instead, the Department characterised the conduct as a “deliberate and conscious act.”

The Department’s case was that the respondent was fully aware that electricity was an exempt output, but despite such knowledge it neither reversed the attributable credit in the relevant monthly returns nor carried out the required annual adjustment.

The department also placed substantial emphasis on the timing of the eventual ITC reversals.

According to the submissions recorded by the Tribunal, ITC amounting to Rs. 76,40,85,928 was reversed in September 2021, while another Rs. 110,70,71,080 was reversed in May 2022.

Together, the two amounts come to approximately Rs. 187.11 crore.

The department contended that these reversals took place only after summons had been issued by the Directorate General of GST Intelligence (DGGI), Jamshedpur. On this basis, the Department argued that the reversals could not be characterised as voluntary and were instead consequential to departmental detection.

The authorised representative contended that because the reversal followed DGGI summons and departmental detection, the circumstances satisfied the conditions of “suppression of facts and wilful misstatement” contemplated under Explanation 2 to Section 74(1) of the CGST Act.

Thus, one of the significant issues emerging from the appeal is whether the taxpayer’s failure to make proportionate ITC reversal over several financial years, followed by reversal after investigative action, could support the Revenue’s allegation of suppression or wilful misstatement for the purposes of Section 74 proceedings.

The Tribunal has not recorded a final finding on the merits of those allegations. The order is one admitting the Revenue’s appeal for consideration after finding prima facie arguable grounds.

After perusing the memorandum of appeal and the documents annexed to it, the Tribunal held that the Revenue had, prima facie, made out arguable grounds warranting consideration.

The Bench accordingly admitted the appeal and directed issuance of notice to the respondent. However, it was brought to the Tribunal’s attention that system-generated intimation was already being sent to both parties. The Bench therefore held that a further notice to the respondent was unnecessary.

The Tribunal also clarified that the respondent would be free to file a cross-objection in terms of Section 112(5) of the CGST Act.

The matter has now been directed to be listed for further hearing on September 23, 2026. 

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: S. 292C Presumption Can’t Rest on ‘Half-Baked Enquiries’: ITAT