The Goods and Services Tax Appellate Tribunal (GSTAT), has raised significant questions concerning the denial of transitional CENVAT credit on procedural grounds and the invocation of Section 74 of the CGST Act, 2017, where there is no specific adjudication of suppression or intent to evade tax.
The bench of Bhaskar Reddy Vemireddy (Judicial Member) and Sh Satish Agrawal (Technical Member) framed the first question around whether transitional credit of taxes or duties paid on inputs or input services can be denied on account of procedural lapses under Section 140(5) of the CGST Act, 2017, when the eligibility and admissibility of the CENVAT credit available to the appellant is not disputed.
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The appellant contended that the underlying eligibility and admissibility of the CENVAT credit under the erstwhile laws was not disputed. According to the appellant, such a substantive credit entitlement could not be denied merely because of a procedural lapse.
The appellant particularly challenged the approach adopted by the lower authorities in interpreting Section 140(5) of the CGST Act, 2017, arguing that the provision should not be applied in an excessively narrow or hyper-technical manner when the substantive entitlement to credit remained undisputed.
The appellant’s counsel argued that transitional credit represents a substantive entitlement and that procedural requirements should not automatically result in forfeiture of otherwise admissible CENVAT credit.
The submission was that where the credit itself is legally eligible under the erstwhile regime, a technical or procedural issue should not be treated as sufficient ground for denying the benefit.
The appellant therefore sought consideration of whether transitional credit could legally be denied under Section 140(5) merely because of a procedural lapse, without disputing the underlying eligibility and admissibility of the CENVAT credit.
A second major issue before the Tribunal concerned the invocation of Section 74 of the CGST Act, 2017, which involves cases of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilised by reason of fraud, wilful misstatement or suppression of facts.
The appellant argued that Section 74 could not be invoked because there was no suppression of facts.
It was specifically submitted that the transactions were duly recorded in the statutory books of account and that the relevant information was available to the Department. The appellant further contended that there was no intent to evade tax and that no illicit financial benefit had accrued.
The appellant also challenged both the Original Order and the First Appellate Order as “non-speaking orders.”
According to the submissions recorded by GSTAT, the lower authorities had failed to specifically deal with the statutory requirements necessary for invoking Section 74, particularly the issue of suppression.
The appellant consequently questioned the sustainability of findings relating to suppression as well as the penalty imposed under Section 74.
The appellant initially placed four substantial questions of law before the Tribunal.
These included whether transitional credit could be denied for procedural lapses where the underlying CENVAT eligibility was undisputed; whether a vested right to CENVAT credit could be denied through a restrictive interpretation of Section 140(5); whether Section 74 could be invoked where transactions were recorded in the books and there was allegedly no intent to evade tax; and whether a penalty equivalent to 100% of the tax demanded was legally sustainable.
After considering the submissions, the Division Bench considered it appropriate to modify the questions of law.
The second question addresses the scope of Section 74, specifically whether it can be invoked for the purpose of extended limitation as well as for imposing a 100% penalty, in circumstances where the issue has not been properly adjudicated, particularly in the light of specific objections raised by the taxpayer.
The Tribunal also formulated a specific question concerning the timing of receipt of the invoice.
The third question asks whether a transitional credit claim that was otherwise eligible could be denied on the technical ground that the invoice was received before the appointed day, and whether such a claim could consequently be treated as suppression of facts.
This question places the procedural aspect of transitional credit directly alongside the statutory requirements for invoking Section 74.
Having formulated the questions, GSTAT directed that notice be issued to the Respondent. The matter has been posted after four weeks.
Accordingly, the order dated 17 September 2026 does not finally decide the substantive questions concerning entitlement to transitional credit, applicability of Section 74, extended limitation, suppression, or the 100% penalty. Instead, the Tribunal has identified the legal issues requiring consideration and directed continuation of the proceedings.
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