The Goods and Services Tax Appellate Tribunal (GSTAT), Cuttack State Bench, has held that the mere failure to file seven monthly GST returns within the prescribed time cannot, by itself, justify invoking Section 74 of the Central Goods and Services Tax Act, 2017, without evidence establishing fraud, wilful misstatement or suppression of facts with intent to evade tax.

The Bench of Suchismita Misra (Judicial Member) and Ananda Satpathy (Technical Member) upheld the first appellate authority’s finding that Section 74 was not legally invocable against the taxpayer. However, the bench set aside the portion of the appellate order that had independently reduced the penalty under Section 73. It remanded the matter to the original adjudicating authority for fresh determination of liability, if any, under Section 73, subject to the statutory limit.

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The orderarose from a departmental appeal seeking restoration of a penalty of ₹73,58,992.

The dispute concerned a registered retailer supplying fast-moving consumer goods, which had failed to file monthly returns for August 2017 to February 2018 within the prescribed time.

Officials of the Anti-Evasion wing visited the business premises on April 19, 2018. According to the factual background recorded in the order, returns for August 2017 to January 2018 were filed on April 20, 2018, while the return for February 2018 was filed on June 6, 2018.

Before the inspection, the taxpayer had reportedly estimated the cash component of the pending return liability and deposited money on March 31, 2018.

Despite the subsequent filing of returns and discharge of the declared liability, a show cause notice under Section 74 was issued on December 27, 2022.

The taxpayer did not participate in the original adjudication proceedings despite issuance of the notice and reminders. The adjudicating authority consequently passed an ex parte order confirming tax of ₹73,58,992, interest under Section 50(1), and an equivalent penalty under Section 74.

While confirming the demand, the authority appropriated the tax already paid while filing the pending returns. Consequently, no effective tax demand remained outstanding after appropriation.

On the taxpayer’s appeal, the Additional Commissioner (Appeals) declined to uphold the invocation of Section 74 and reduced the penalty to ₹7,35,900 under Section 73(9). The appellate order reflected nil tax and nil interest demand.

The department challenged this decision before the GSTAT, seeking restoration of the Section 74 penalty.

The department contended that prolonged non-filing of statutory returns, followed by compliance after inspection, demonstrated suppression with intent to evade tax.

It argued that return filing is central to the GST self-assessment mechanism and that compliance after enforcement action could not be treated as voluntary.

Relying on Explanation 2 to Section 74, the department also maintained that depositing money in the electronic cash ledger without filing returns and declaring liability did not absolve the taxpayer.

During the hearing, the departmental representative additionally argued that Section 75(2) required the original adjudicating authority to determine any liability under Section 73.

The Tribunal found that the department had accepted the turnover, tax rate, input tax credit and tax liability disclosed in the belated returns.

The same figures had been used in the original adjudication order to quantify the allegedly unpaid tax. No incorrect declaration relating to these particulars had been identified.

The Bench noted that no fraud had been alleged. Although the proceedings referred to wilful misstatement and suppression, they did not specify the information that had been misstated or concealed.

There was also no allegation that the taxpayer had failed to furnish information sought in writing by the proper officer.

On these facts, the Tribunal concluded that delayed filing of seven monthly returns could not independently sustain proceedings under Section 74.

Examining Explanation 2 to Section 74, the Tribunal focused on its reference to non-declaration of information required to be declared in a return, statement, report or other document furnished under the Act or rules.

The Bench reasoned that this limb concerned material information omitted from documents furnished by the taxpayer. In the present case, the returns had been filed, their contents had been accepted as correct, and no material omission had been established.

It therefore held that Explanation 2 did not support the allegation of suppression in the circumstances of the case.

A significant factual aspect was the composition of the tax liability.

Out of the total liability of ₹73,58,992, only ₹96,012 was discharged through the cash ledger. Approximately 98.7% was discharged through input tax credit.

The first appellate order also recorded a deposit of ₹1,10,673 on March 31, 2018, comprising ₹85,573 towards SGST and ₹25,100 towards late fee.

The Tribunal treated the reported deposit before inspection as conduct indicating that the taxpayer did not intend to withhold the net amount due to the Government.

It further noted that interest arising from delayed discharge of the cash liability had reportedly been paid before commencement of the adjudication proceedings.

The Bench expressly made its observations regarding the estimated cash deposit and interest payment subject to verification of payment records.

The Tribunal also examined the statutory framework for addressing return defaults.

It referred to the obligation to file returns under Section 39 read with Rule 61, issuance of notice under Section 46 in Form GSTR-3A, and the provision for best judgment assessment where the default continues after notice.

The original adjudication order did not mention action under this framework for the disputed periods. Instead, inspection under Section 67 had been undertaken.

The Tribunal also questioned the basis for demand proceedings when the declared liability had already been discharged. Nevertheless, it expressly confined its determination to the disputed maintainability of Section 74 in the departmental appeal.

Although the Tribunal upheld the rejection of Section 74, it did not affirm the reduced penalty of ₹7,35,900 determined by the first appellate authority.

Applying Section 75(2), it held that the fresh determination under Section 73 had to be undertaken by the proper officer—the original adjudicating authority in this case.

Accordingly, it set aside the penalty-modification portion of the appellate order and remanded the matter for determination of liability, if any, under Section 73, subject to the statutory limit.

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