The Goods and Services Tax Appellate Tribunal (GSTAT), Chandigarh Bench, has held that discrepancies in statutory returns and availment of input tax credit under an incorrect tax head cannot, by themselves, justify invoking Section 74 of the Central Goods and Services Tax Act, 2017, without establishing fraud, wilful misstatement or suppression of facts to evade tax.

The Bench of Jatinder Pal Singh (Judicial Member) and Pradeep Kumar Goel (Technical Member) set aside the confirmation of demand and penalty under Section 74 against RLCR 7 Super Market. It remanded the disputed tax issues to the original adjudicating authority for fresh examination, directing that any tax liability be determined under Section 75(2), treating the notice as one issued under Section 73(1).

Buy Now: 160+ GST E-Magazine September 2026

The Tribunal rejected the taxpayer’s separate contention that a consolidated show cause notice and adjudication order covering multiple financial years were legally impermissible. 

The dispute arose from an audit of the Chandigarh-based supermarket’s records for July 2017 to March 2022 under Section 65 of the CGST Act.

Following the audit, the department issued a show cause notice on September 30, 2023. The Assistant Commissioner subsequently passed an adjudication order on October 22, 2024, confirming a tax demand of ₹3,46,343, along with interest under Section 50 and an equivalent penalty under Section 74 and the corresponding statutory provisions.

The Additional Commissioner (Appeals), by an order dated February 16, 2026, granted relief of ₹4,370 but otherwise rejected the appeal. The taxpayer then approached GSTAT, challenging both the consolidated proceedings and the demands relating to ITC mismatch, adjustment of payments across tax heads, and credit availed under incorrect heads.

The Tribunal first examined whether the department could issue one show cause notice and pass one adjudication order covering several financial years.

It observed that Sections 74(2) and 74(10) prescribe the time limits for issuing notices and orders, but do not require a separate notice for each financial year. It found no statutory prohibition against a common notice covering multiple tax periods or financial years.

According to the Bench, consolidation would not adversely affect the taxpayer’s rights so long as the entire period covered by the demand remained within the applicable statutory time limits.

The Tribunal also rejected the objection to a consolidated DRC-07, observing that the right to appeal under Section 107(1) was governed by the date of communication of the adjudication order.

In reaching this conclusion, it referred to decisions discussed in its order, including the Karnataka High Court’s ruling in Chimney Hills Education Society and the Delhi High Court’s ruling in Mathur Polymers. It also noted that the Bombay High Court, in Rollmet LLP, had expressed doubts about an earlier contrary view and referred questions for consideration by a larger Bench.

The taxpayer’s challenge based solely on consolidation was therefore rejected.

One component of the dispute concerned ₹1,54,194, comprising ₹77,097 each under CGST and SGST, arising from a difference between ITC claimed in GSTR-3B and credit reflected in GSTR-2A for financial year 2021–22.

The taxpayer maintained that the disputed credit related to the preceding financial year and had been availed in the subsequent year within the permissible period under Section 16(4).

It relied on disclosures in its GSTR-9 for 2020–21 concerning credit relating to that year but availed in the following financial year.

The Tribunal noted that the first appellate authority had not rejected the claim on legal admissibility. Instead, it had declined relief because the taxpayer had not established that the adjudicating authority had omitted this adjustment while calculating the mismatch.

The Bench held that the original adjudicating authority was best placed to verify whether the benefit had already been allowed. It found no convincing reason to deny the taxpayer an opportunity to produce supporting documents.

Another dispute concerned a residual IGST demand of ₹1,52,088 following appropriation of amounts already deposited.

The taxpayer argued that, after deducting total deposits of ₹8,49,805 from the demand of ₹9,81,924, the remaining liability should have been ₹1,32,119.

The appellate authority had rejected this argument because the deposits under individual tax heads did not match the corresponding liabilities. It held that payments under one head could not be adjusted against liability under another.

GSTAT directed that the taxpayer be permitted to demonstrate before the original authority whether depositing liability under an incorrect head had caused any prejudice to, or loss of, revenue. It required the facts to be verified against the relevant legal provisions.

The Tribunal similarly remanded a ₹28,474 dispute concerning ITC availed and utilised under incorrect heads. The taxpayer must be given an opportunity to produce evidence, while the adjudicating authority must examine the claim in accordance with Section 49 and Rule 88A.

The order did not finally allow these disputed credits or approve cross-head adjustments.

On Section 74, the Tribunal held that the provision requires more than an allegation of incorrect credit or short payment.

It explained that the statutory expression “to evade tax” requires a positive intent, or mens rea, on the taxpayer’s part. Conscious and deliberate withholding of information must be distinguished from an inadvertent failure.

The show cause notice had alleged that the taxpayer failed to correctly discharge its liability and that the discrepancies would have remained undetected without an audit.

However, the Tribunal found that the notice did not explain how the taxpayer had committed fraud, made a wilful misstatement or suppressed facts to evade tax.

The amounts on which ITC was claimed had been disclosed in statutory returns, which themselves formed the basis of the audit. The GSTR-3B and GSTR-2A differences were also apparent from those returns. Further, the department had not alleged that credit was taken under the wrong head with a guilty intent to evade tax.

The Bench consequently found no justification for sustaining the demand and penalty under Section 74.

The Tribunal directed the original adjudicating authority to decide the matter afresh after considering additional evidence, if necessary.

Any tax payable must be determined under Section 75(2), deeming the show cause notice to have been issued under Section 73(1). Interest and penalty must also be reworked accordingly.

The Bench held that Section 50 would apply to the tax determined as payable.

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: 160+ GST E-Magazine September 2026