The Goods and Services Tax Appellate Tribunal (GSTAT), Thiruvananthapuram Bench, has held that the mere availment of ineligible self-assessed Input Tax Credit (ITC) cannot, by itself, be treated as “suppression of facts” warranting invocation of the extended provisions of Section 74 of the Central Goods and Services Tax (CGST) Act, 2017.
The Bench of Subramanya V Rayaprol (Vice-President) and Ramamoorthi Sriram (Technical Member) ruled that a taxpayer’s failure to respond to an audit enquiry or final audit report, in the absence of other evidence, would also not automatically constitute suppression under Section 74.
The case arose from an audit of the taxpayer’s records for the period from July 2017 to March 2022. The taxpayer was engaged in the manufacture and supply of centrifugal rubber latex used in medical, pharmaceutical and other commercial applications.
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Following the audit, the department issued a Show Cause Notice under Section 74(1) of the CGST Act, read with the corresponding provisions of the Kerala GST Act and Section 20 of the IGST Act. The notice proposed recovery of alleged excess ITC for the financial years 2017-18 to 2021-22, along with applicable interest and penalty.
The original adjudicating authority, however, concluded that the statutory ingredients necessary for invoking Section 74 had not been established. It found that the allegation of non-declaration of facts or information contemplated under Explanation 2 to Section 74 was not established in the Show Cause Notice.
The adjudicating authority also noted that the notice had proceeded specifically under Section 74 without leaving an option to confirm the demand under Section 73. Consequently, the proposed demand, interest and penalty under Section 74 were dropped.
The department challenged the adjudication order before the Joint Commissioner (Appeals), contending principally that the taxpayer had failed to furnish information sought during the audit and that the relevant facts had come to the department’s notice only through the audit process.
The appellate authority accepted the department’s appeal and reversed the original adjudication order. This prompted the taxpayer to approach the GST Appellate Tribunal.
Before the Tribunal, it was argued that the proceedings were based entirely on statutory return data, including GSTR-2A/Table 8 figures, GSTR-3B and GSTR-9C reconciliation records, rather than any search, seizure, parallel records, fake invoices or concealed purchases.
It was also submitted that the invoice-wise reconciliation explaining the alleged ITC difference had already been uploaded with the GSTR-9C/annual return filings and was available on the GST portal. Therefore, according to the taxpayer, there was no concealment of information from the department.
The Tribunal placed considerable emphasis on the contents of the original Show Cause Notice, observing that the SCN itself was the foundational document for the proceedings.
The SCN alleged that the taxpayer had taken self-assessed ITC in its Electronic Credit Ledger without actually verifying its eligibility and, on that basis, alleged suppression of facts. It proposed recovery of approximately ₹8.56 lakh as allegedly ineligible credit, along with interest and penalty under Section 74.
However, the Tribunal found that the department had not produced evidence demonstrating that the taxpayer knowingly availed ITC despite being aware that the credit was ineligible.
The Bench held that even assuming that ITC had been availed without adequate verification, there was no statutory presumption that such an act automatically amounted to suppression. According to the Tribunal, the department was required to establish that the taxpayer knew that the particular ITC was ineligible and nevertheless proceeded to claim it in a contumacious manner.
The Tribunal found no such assertion supported by evidence in the Show Cause Notice.
A central observation of the Tribunal was that every contravention of Sections 16(2) or 42(1) of the CGST Act cannot automatically be treated as a case falling under Section 74.
Section 74 is concerned with tax short-paid, not paid, erroneously refunded, or ITC wrongly availed or utilised by reason of fraud, wilful misstatement or suppression of facts with intent to evade tax.
The Tribunal therefore stressed that the department must establish the additional element of fraud, wilful misstatement or suppression with intent to evade tax before invoking the harsher provisions of Section 74. Mere wrong availment of credit, without evidence establishing the requisite intent, was held insufficient.
The Bench also noted that the SCN was founded substantially on assertions that “availment of ineligible/excess credit would amount to suppression of facts” and that the taxpayer had acted with a mala fide intention to evade tax. The Tribunal found these assertions unsupported by evidence.
The Tribunal also examined the findings recorded by the original adjudicating authority.
The original order had noted that the taxpayer had availed ITC through GSTR-3B and subsequently filed self-certified GSTR-9C reconciliation statements reconciling ITC claimed in GST returns with the ITC reflected in financial records. Relevant documents had also been uploaded on the GST portal.
On this factual basis, the adjudicating authority had found no fraud, wilful misstatement or suppression of facts. It had further observed that the taxpayer had reversed ineligible or blocked credit through self-assessment.
The Tribunal endorsed this reasoning, holding that the original adjudicating authority had correctly appreciated the facts and law in concluding that Section 74 was not invocable.
Another significant aspect of the ruling concerned the principle that an adjudicating authority cannot sustain a demand on a ground that was not part of the Show Cause Notice.
The Tribunal observed that the Revenue, before the appellate authority, sought to rely on the taxpayer’s alleged failure to respond to the audit enquiry and final audit report. According to the Tribunal, this was a new and extraneous ground that did not form part of the original Show Cause Notice.
The Bench held that raising such an additional ground at the appellate stage violated fundamental principles of natural justice. The appellate authority, therefore, ought to have rejected the department’s appeal on this ground alone.
The Tribunal was particularly critical of the Order-in-Appeal for relying on the alleged failure to provide information without identifying what information had actually been sought, when it had been sought, or under which statutory provision it had been demanded.
The Bench described the appellate order as vague and found that it contained no evidence explaining how the alleged failure amounted to suppression of facts.
The Tribunal reiterated the importance of the SCN as the foundation of tax adjudication.
It noted that the original adjudicating authority had specifically found that the proceedings arose from statutory return data, including GSTR-2A/Table 8, GSTR-3B and GSTR-9C reconciliation records. The invoice-wise reconciliation had already been uploaded on the GST portal.
Consequently, the Tribunal found that the appellate authority had failed to properly address the factual findings of the adjudicating authority and had instead relied on a new allegation concerning non-response to audit proceedings. The Tribunal held that this demonstrated non-application of mind by the appellate authority.
The Bench also referred to CBIC Instruction No. 05/2023-GST dated December 13, 2023, which addresses invocation of Section 74.
According to the Tribunal’s discussion of the instruction, Section 74 should be invoked only where there is material evidence of fraud, wilful misstatement or suppression of facts with intent to evade tax. Such evidence should form part of the Show Cause Notice itself.
The Tribunal found that the SCN in the present case did not satisfy these requirements. It observed that the notice was not based on any meaningful investigation and that no material evidence of fraud, wilful misstatement or suppression with intent to evade tax had been identified.
The Tribunal also referred to Supreme Court decisions dealing with the meaning of “wilful misstatement” and “suppression” under the Central Excise law, noting the similarity in the statutory language.
Referring to Cosmic Dye Chemical v. Collector of Central Excise, Bombay, the Tribunal noted the Supreme Court’s position that misstatement or suppression must be wilful and connected with the requisite intent to evade duty.
The Tribunal also referred to Commissioner of Central Excise, Nagpur v. Ballarpur Industries Ltd., wherein suppression was understood strictly and a mere omission to provide correct information was held insufficient unless the omission was wilful and intended to evade payment of duty.
The Tribunal applied these principles while examining whether the department had established the necessary ingredients for invoking Section 74.
The Tribunal separately answered the question of whether failure to reply to an audit enquiry or final audit report could constitute suppression.
It held that, in the absence of other evidence, mere failure to reply to an audit enquiry or final audit report would not amount to suppression of facts under Section 74.
The Tribunal also rejected the proposition that the mere act of taking ineligible self-assessed ITC in the Electronic Credit Ledger under Section 42(1) automatically constituted suppression.
The GSTAT held that the Show Cause Notice itself failed to establish a sustainable case for invoking Section 74. It found that the original adjudicating authority had correctly concluded that the statutory conditions for Section 74 were absent.
The Tribunal further held that the Order-in-Appeal violated fundamental principles of natural justice by relying on a ground that was not contained in the Show Cause Notice. It also noted that the appellate authority had failed to dislodge the factual finding that the relevant reconciliation had already been disclosed through GSTR-9C and annual return filings.
The Tribunal ultimately answered both questions framed for determination in the negative. It held that, in the absence of contrary evidence, mere availment of ineligible self-assessed ITC would not amount to suppression of facts attracting Section 74(1).
Likewise, mere failure to respond to an audit enquiry or final audit report would not, by itself, amount to suppression under Section 74.
The Tribunal set aside the impugned Order-in-Appeal and allowed the appeals with consequential relief. The order was pronounced in open court on August 21, 2026.
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