The Goods and Services Tax Appellate Tribunal (GSTAT), Kolkata Bench, has held that incorrect information in a return does not automatically establish wilful misstatement or suppression of facts to evade tax. While finding the show cause notice issued under Section 74(1) of the Central Goods and Services Tax Act, 2017 unsustainable, the Tribunal remanded a ₹21.72 lakh transitional credit dispute for verification of the taxpayer’s records. 

The Bench comprising Satya Gopal Chattopadhyay (Judicial Member) and Anindya Mitra (Technical Member) directed the adjudicating authority to examine the credit discrepancy and pass a reasoned order within six months from the date of communication of its order.

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During scrutiny of the taxpayer’s TRAN-1 declaration, the department noticed that transitional credit of ₹65,59,997 had been claimed under Table 5(a), whereas the closing credit balance reflected in the June 2017 ER-1 return was ₹43,87,501.

The difference of ₹21,72,496 formed the basis of the dispute.

The taxpayer explained that it had inadvertently omitted input service credit of ₹21,72,496 from the relevant column of its return. It further stated that a technical error in the ACES portal prevented acceptance of the revised ER-1 return.

The adjudicating authority did not accept this explanation and treated the difference as excess transitional credit. A show cause notice under Section 74(1) culminated in an order demanding ₹21,72,496, along with interest under Section 50 and penalty under Section 122(2)(b) of the CGST Act.

The taxpayer challenged the adjudication order dated February 10, 2022 before the Additional Commissioner (Appeals), Siliguri.

The first appellate authority treated the omission as a procedural lapse and held that such a lapse could not justify denial of a substantive benefit. It accordingly set aside the adjudication order.

However, the relief was expressly subject to verification, scrutiny and exact quantification of the input service credit to which the taxpayer was entitled on the strength of its documents and records.

The department challenged this decision before GSTAT under Section 112(3) of the CGST Act.

The department argued that Section 140(1) permitted transition only of the CENVAT credit carried forward in the last return filed under the earlier tax regime.

According to the department, the taxpayer could therefore carry forward ₹43,87,501, rather than the ₹65,59,997 claimed in TRAN-1. It contended that the difference had been wrongly availed and utilised and was recoverable with interest and penalty.

After examining the records, the Tribunal noted that the difference between the credit declared in TRAN-1 and the closing balance under the earlier returns remained undisputed.

It held that the discrepancy required thorough verification by the authorities.

The Tribunal remanded the matter to the proper officer or adjudicating authority for the limited purpose of verifying the difference and passing a reasoned order based on that exercise.

Micro Labs was directed to produce all relevant records without delay. The adjudicating authority was given six months from communication of the order to complete the process.

The remand therefore did not amount to an unconditional allowance of the disputed ₹21.72 lakh credit. Its admissibility and exact amount remain subject to examination of the supporting records.

Separately examining the invocation of Section 74, the Tribunal rejected the adjudicating authority’s reasoning that the taxpayer’s return filings and subsequent disclosure established deliberate suppression.

The adjudication order had referred to returns filed on July 9, July 10 and July 12, 2017, and the taxpayer informing the department of the mistake only on July 28, 2017. On that basis, the authority had inferred wilful suppression and an intention to evade tax.

The Tribunal held that “mere wrong or incorrect information does not, ipso facto, establish charges of wilful mis-statement.” 

It relied on the Kolkata Bench’s earlier ruling in Commissioner CGST & CX Kolkata North v. Power Tech Global Private Limited, which explained that Section 74(1) requires evidence of fraud, wilful misstatement or suppression of facts to evade tax.

That decision discussed CBIC Instruction No. 05/2023-GST dated December 13, 2023, emphasising that mere non-payment of GST does not justify invoking Section 74 without the specified elements. It also explained that material evidence supporting such allegations should form part of the show cause notice.

The Tribunal further relied on the Supreme Court’s decision in Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, Meerut, which requires suppression to be construed strictly and distinguishes a deliberate act intended to evade duty from an ordinary omission.

Applying these principles, GSTAT concluded that the allegations of wilful misstatement or suppression against the taxpayer had not been established.

The Tribunal held the Section 74(1) notice unsustainable and disposed of the appeal with directions for limited verification of the transitional credit discrepancy.

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