The Goods and Services Tax Appellate Tribunal (GSTAT), Chandigarh Bench, has upheld the validity of a consolidated show cause notice covering multiple financial years, while holding that Section 74 cannot be invoked for freight and input tax credit demands without allegations establishing fraud, wilful misstatement or suppression of facts with intent to evade tax.

The bench of Jatinder Pal Singh (Judicial Member) and Pradeep Kumar Goel (Technical Member) sustained a GST demand of ₹1,30,578 on undisclosed rental income, together with an equal penalty and applicable interest. However, it set aside the invocation of Section 74 for freight liability and two disputed ITC amounts, directing determination of tax payable, if any, under Section 75(2), treating the notice as one issued under Section 73(1).

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The appellant/taxpayer, engaged in manufacturing customised BOPP film, underwent a GST audit covering July 2017 to March 2023. Following discrepancies identified during the audit, the Department issued a final audit report on July 18, 2024, and a show cause notice on July 29, 2024.

The Superintendent, CGST Range-IV, Division-III, Chandigarh, adjudicated the notice through an order dated February 4, 2025. The taxpayer challenged that order through four appeals, which the Additional Commissioner (Appeals) rejected through a common order dated March 25, 2026.

The proceedings before GSTAT concerned financial years 2017-18, 2018-19, 2020-21 and 2021-22. The disputes involved GST on rental income, reverse charge liability on freight, excess or ineligible ITC, allegedly blocked credit, late fee and the applicability of Section 74.

The taxpayer argued that the authorities ought to have issued separate show cause notices for individual financial years. It contended that a composite notice and consolidated adjudication order were legally impermissible, relying on judicial precedents including Milroc Good Earth Developers v. Union of India.

It held that a combined show cause notice and order-in-original covering multiple financial or tax years were legally valid. Consequently, the proceedings could not be quashed merely because several years had been included in a consolidated notice and order.

The rental income dispute concerned GST of ₹1,30,578 on receipts of ₹7,25,436 during financial years 2017-18 and 2018-19.

The taxpayer argued that the rented property was situated in Dera Bassi, Punjab. Relying on Section 12(3) of the IGST Act, it submitted that the place of supply was Punjab and that the Chandigarh GST authorities therefore lacked territorial jurisdiction.

The Tribunal distinguished between the place of supply and the location of the supplier of services.

Referring to Section 2(71)(a) of the CGST Act and Section 2(15)(a) of the IGST Act, the Bench noted that the taxpayer’s registered place of business was in Chandigarh. On the facts before it, the renting service had to be treated as supplied from that registered place of business.

The property’s location in Punjab meant that the transaction was an inter-State supply attracting IGST. It did not take away the jurisdiction of the Chandigarh CGST authorities over the taxpayer.

Accordingly, the rental income demand could not be struck down for want of territorial jurisdiction.

The Tribunal upheld the invocation of Section 74 for the rental income demand.

It noted that the taxpayer had neither disputed receiving the rent nor challenged its taxability on merits. Its objection was confined to territorial jurisdiction.

The audit team had detected the rental receipts from the taxpayer’s Income Tax Form 26AS. The taxpayer had not even claimed that those receipts had been disclosed in its GST returns.

Applying Explanation 2 to Section 74, the Tribunal held that non-declaration of the rental income in GST returns amounted to suppression of facts.

It therefore sustained the tax demand of ₹1,30,578, an equal penalty under Section 74, and applicable interest under Section 50.

The Tribunal reached a different conclusion on the freight demand of ₹30,156, the excess or ineligible ITC dispute of ₹2,18,590, and the allegedly blocked credit of ₹5,966.

It found that the show cause notice did not contain allegations establishing how the taxpayer had committed fraud, made a wilful misstatement or suppressed facts with intent to evade tax in relation to these amounts.

The relevant figures had been disclosed in statutory returns, which formed the basis of the departmental audit. The difference between GSTR-3B and GSTR-2A was also apparent from those returns.

The Department had not alleged that credit under an incorrect head was intentionally taken to obtain a benefit unavailable under the law.

The Bench relied on the Supreme Court’s decision in Tata Steel Limited v. Union of India, as discussed in the order, for the principle that the foundational facts supporting fraud, wilful misrepresentation or suppression must be evident from the notice itself. Merely using those expressions does not establish the necessary application of mind.

The Tribunal also examined the adjudicating authority’s findings concerning the ₹2,18,590 ITC dispute.

The original authority had observed that the taxpayer had not availed the entire CGST and UTGST credit available in GSTR-2A in earlier years and that such credit could have been availed subsequently. It had described the credit availment exercise as revenue neutral.

The Tribunal held that, after recording this finding, the adjudicating authority was not justified in invoking Section 74 for demand and penalty on that amount.

The taxpayer argued that credit could not be denied merely because the corresponding invoices were absent from GSTR-2A, provided the statutory conditions were satisfied.

The Tribunal held that ITC should be allowed if the conditions of Section 16 were fulfilled, regardless of whether it appeared in GSTR-2A. It therefore directed the adjudicating authority to reconsider the claim on merits.

The taxpayer also claimed that the entire disputed credit of ₹2,18,590 had already been deposited through DRC-03 dated January 26, 2022.

However, the Tribunal noted that the original authority had found payment of only ₹1,87,250 in IGST with interest, without corresponding payment of CGST and UTGST. The IGST payment had already been appropriated in the adjudication order.

The remand consequently requires fresh examination of admissibility and the payment position; it does not amount to a final allowance of the entire disputed credit.

The Tribunal separately considered the allegedly blocked credit of ₹5,966.

The taxpayer submitted that ITC relating to an invoice issued by Onkar Tyre House on June 29, 2021, had been disallowed because the invoice was unavailable during audit. It claimed that a copy was subsequently produced.

Finding no adjudication addressing this contention, the Tribunal directed the authority to reconsider the claim on merits if the invoice was now available as asserted.

The Tribunal set aside the confirmation of demand and penalty under Section 74 for the freight liability and the two disputed ITC amounts.

It directed the proper officer to determine tax payable, if any, under Section 75(2), deeming the show cause notice to have been issued under Section 73(1).

The ruling does not unconditionally extinguish the underlying freight or ITC liability. It removes the Section 74 basis for those demands and requires reconsideration under the non-fraud provision, with the ITC claims also subject to fresh examination on merits.

The Tribunal additionally upheld the late fee of ₹250 and related interest, recorded in its discussion as ₹204. It rejected the taxpayer’s Section 74 objection to these amounts, reasoning that the provision concerned demands of tax and imposition of penalty.

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