The Goods and Services Tax Appellate Tribunal (GSTAT), Kolkata Bench, has dismissed a departmental appeal seeking restoration of a ₹34.09 lakh penalty, holding that delayed payment of GST and short payment of interest did not, on the facts of the case, justify proceedings under Section 74 of the Central Goods and Services Tax Act, 2017.

The bench of S.G. Chattopadhyay (Judicial Member) and Bijoy Kumar Kar (Technical Member) upheld the first appellate authority’s order granting relief to Summit Hotels & Resorts Private Limited. It found that the show cause notice lacked the foundational facts necessary to establish fraud, wilful misstatement or suppression of facts to evade tax.

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The dispute concerned the financial year 2017–18 and arose from delayed payment of GST, belated filing of GSTR-3B returns and an interest shortfall.

The department issued a show cause notice on August 5, 2024, proposing a demand of ₹34,09,397 under Section 74. This comprised IGST of ₹4,358, CGST of ₹14,58,733 and SGST of ₹19,46,306.

Since the tax had already been paid, the notice also proposed appropriating that payment against the demand. It additionally proposed recovery and appropriation of ₹4,764 in SGST interest and imposition of a penalty under Section 74.

In its reply, the taxpayer stated that it had paid the self-assessed tax and interest and filed its GSTR-3B returns before proceedings were initiated. It explained that a calculation error had resulted in an interest shortfall of ₹4,764, which was subsequently paid and intimated through Form DRC-03 dated July 12, 2022.

Thus, the interest shortfall had also been cleared more than two years before the show cause notice was issued.

By an order dated January 20, 2025, the adjudicating authority confirmed the GST demand of ₹34,09,397 under Section 74(9) and appropriated the tax already deposited.

It also confirmed the interest liability of ₹4,764 and appropriated the payment made through DRC-03.

Despite these payments, the authority imposed a penalty equal to the confirmed tax demand—₹34,09,397—under Section 74(9). It allowed the benefit of a reduced penalty subject to compliance with the conditions under Section 74(11).

The taxpayer challenged this order before the first appellate authority under Section 107 of the CGST Act.

The first appellate authority held that the department had failed to establish fraud, wilful misstatement or suppression of facts to evade tax.

It noted that the taxpayer had already discharged the outstanding interest through DRC-03 before issuance of the show cause notice. In the absence of evidence supporting the allegations necessary for invoking Section 74, it found the notice unsustainable.

The first appellate authority allowed the taxpayer’s appeal and set aside the adjudication order.

The department subsequently approached GSTAT under Section 112(1), seeking restoration of the original order.

The department contended that belated payment of tax and short payment of interest amounted to fraud contemplated under Section 74.

Its authorised representative, Mukesh Kumar Shaw, Superintendent, CGST, urged the tribunal to overturn the first appellate authority’s decision and restore the adjudicating authority’s order.

The taxpayer, represented by Chartered Accountant Mayank Agarwal, argued that none of the statutory ingredients required for invoking Section 74 had been established. It maintained that belated payment of tax and delayed filing of returns could not, by themselves, justify proceedings under that provision.

The tribunal therefore examined whether the revenue had made out a legally sustainable case under Section 74.

The tribunal relied on its earlier decision in Powertech Global Private Limited, reported in (2026) 1 GSTAT E Journal 51 (Kolkata), which discussed the conditions governing invocation of Section 74.

The reasoning reproduced from that decision explained that the provision requires fraud, wilful misrepresentation or suppression must be evident from the notice itself. Mechanically inserting these expressions does not demonstrate the application of mind required to invoke an extended limitation period.

GSTAT found that the notice issued to the hotel company lacked the necessary foundational facts.

It consequently agreed with the first appellate authority that the case did not warrant invocation of Section 74(1).

The tribunal found no reason to interfere with the first appellate authority’s order and dismissed the revenue’s appeal.

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