The Raipur Bench of the Goods and Services Tax Appellate Tribunal (GSTAT) has sent three connected cases back for fresh adjudication, holding that an appellate order cannot simply confirm a tax demand without examining the taxpayer’s objections and giving reasons.
The bench of Pradeep Kumar Vyas (Judicial Member) and Chandra Bhushan Singh (Technical Member) set aside tax, interest and penalty demands totalling ₹1,69,68,607 against three businesses after finding that the First Appellate Authority had failed to address their substantive grounds of appeal.
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The Bench held that the appellate authority’s brief, substantially identical conclusions in all three cases did not amount to reasoned appellate decisions.
The proceedings began with a search on February 10 and 11, 2021, at premises connected with the businesses. Officers seized books, registers, invoice books and other records. The department subsequently initiated proceedings under Section 74 of the GST law and raised separate demands based on the material it said was relevant to each business.
The demand against Cheema Bricks & Traders relied, among other things, on entries in seized site-wise registers. The Cheema Trading Company case involved seized invoice books and an estimate of alleged unaccounted supplies. The third case concerned alleged taxable transportation or goods transport agency (GTA) activity.
The businesses challenged the demands before the First Appellate Authority, which dismissed their appeals on May 6, 2024. They then approached the GSTAT.
The businesses argued that the show-cause notices issued through the GST portal did not provide detailed allegations and supporting material sufficient to answer the proposed demands. They also disputed whether the documents relied on by the department had been clearly identified and made available to them, and said they had not received an effective personal hearing during original adjudication.
The appellant challenged the treatment of entries in its site-wise registers as unaccounted taxable supplies and the extrapolation of those entries. Cheema Trading Company disputed the conclusions drawn from its invoice books. Cheema Local Carrier & Construction contested the allegation of an independent taxable transportation or GTA activity.
The businesses also argued, where relevant, that transportation formed part of the supply of goods and that tax had already been paid on the corresponding value. They disputed the use of Section 74, which concerns cases involving fraud, wilful misstatement or suppression of facts with intent to evade tax.
The department defended the demands. It maintained that they were based on records recovered during the search and other material collected in the investigation. It also said the businesses had been given opportunities to inspect documents and participate in the proceedings.
The Tribunal found a decisive flaw in the first appellate orders. The businesses had raised seven grounds covering natural justice, the validity of the show-cause notices, the basis for the estimated demands, alleged unaccounted transactions, transportation tax, Section 74 penalties and interest. They had also cited numerous judicial decisions.
According to the GSTAT, the First Appellate Authority did not examine those grounds or the cited decisions. It stated, in substance, that the appellants had failed to produce satisfactory evidence, confirmed the original orders and rejected the appeals. The Tribunal noted that substantially identical reasoning and conclusions appeared across all three cases despite their different factual issues.
An appellate authority must consider the material grounds placed before it and explain why it accepts or rejects them, the Bench held. Merely stating a conclusion does not discharge that duty. The GSTAT therefore found that the first appellate orders were neither reasoned nor speaking orders.
The Tribunal considered whether the matters should return to the First Appellate Authority. It ultimately directed fresh adjudication by the original authorities because the businesses had also raised objections about the original proceedings, including the adequacy of the notices, access to seized records and the opportunity for a personal hearing. The original orders had been passed ex parte, the Tribunal noted.
The adjudicating authorities must clearly identify the documents supporting each proposed demand and make them available to the concerned business if that has not already been done. They must allow the businesses to submit replies, explanations, reconciliations and supporting material, followed by an effective personal hearing with the date, time and mode or place specified. Fresh orders must then give reasons based on the evidence and submissions.
The GSTAT added that an authority may proceed on the available record if a business fails to use a duly communicated opportunity without sufficient cause. Even then, it must assess the evidence and explain its conclusions.
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