GSTAT’s First Order: Jurisdictional Clarity, Section 75(2) Discipline and the Protection of Honest Compliance

The first substantive order delivered by the Goods and Services Tax Appellate Tribunal (GSTAT) on 11 February 2026 in M/s Sterling & Wilson Pvt. Ltd. Through Zarine Yazdi Daruvala Versus Commissioner, Odisha, Commissionerate of CT GST & Ors. Sanjukta Gantayat. - 2026 (2) TMI 726 - GSTAT NEW DELHI is not merely a remand order. It is an institutional declaration on how second appeals under Section 112 of the CGST Act, 2017 are to be understood and administered.

The decision clarifies the Tribunal’s jurisdiction, restores statutory sequencing between Sections 73, 74 and 75(2), and adopts a pragmatic approach toward reconciliation disputes arising in the formative GST years  .

I. The Dispute in Brief

The appellant faced proceedings for FY 2018–19 based on an alleged mismatch between GSTR-1 and GSTR-3B. The Proper Officer invoked Section 74 and raised:

• Tax: Rs.27,06,634
• Interest: Rs.11,04,582
• Equal penalty
• Aggregate demand exceeding Rs.65 lakh  

On first appeal, the Additional Commissioner (Appeals):

• Held that fraud or suppression was not established,
• Converted the case from Section 74 to Section 73,
• Reduced penalty to 10%,
• Confirmed tax and interest  .

The assessee approached GSTAT under Section 112.

II. GSTAT as the Final Fact-Finding Authority

Revenue argued that GSTAT’s jurisdiction resembles Section 100 CPC and is confined to substantial questions of law.

The Tribunal rejected this submission.

117 and 118 (which reserve substantial question of law jurisdiction for higher courts), the Tribunal held that GSTAT is not confined to legal questions alone and is the last fact-finding authority under GST  .

This pronouncement is foundational. It establishes GSTAT as a full appellate forum on facts and law.

III. Dilip Kumar Distinguished

Revenue relied on Commissioner of Customs (Import), Mumbai Versus M/s. Dilip Kumar And Company & Ors. - 2018 (7) TMI 1826 - Supreme Court (LB) to invoke strict interpretation of tax statutes.

The Tribunal distinguished the precedent, holding that the Constitution Bench ruling concerned interpretation of exemption notifications, whereas the present case involved factual reconciliation of alleged short payment  .

Strict interpretation doctrine cannot substitute factual adjudication.

IV. Section 74 Fails — The Discipline of Section 75(2)

The most important statutory issue arose after the First Appellate Authority held that fraud was not established yet imposed liability under Section 73.

The Tribunal examined Section 75(2), which mandates that where fraud is not established, “the proper officer shall determine the tax payable… deeming as if notice were issued under Section 73.”

The Tribunal held:

• Re-determination must be done by the Proper Officer.
• Appellate authorities cannot assume original jurisdiction.
• Once Section 74 collapses, remand is statutorily required  .

This preserves procedural hierarchy and statutory architecture.

V. The Crucial Reasoning in Paras 27 and 32

The doctrinal heart of the judgment lies in Paragraphs 27 and 32 

.(A) Paragraph 27 –  fraud under Section 74, the appellate authority could itself impose liability under Section 73.

The Appellant argued that such substitution was improper.

Revenue relied upo Section 75(2).

The Tribunal extracted the statutory language and concluded that Section 75(2) directs the Proper Officer to re-determine liability. It does not empower appellate authorities to undertake such determination.

Thus:

• Conversion from Section 74 to Section 73 cannot be completed at appellate level.
• The statutory mechanism requires remand.
• Appellate substitution would violate procedural discipline.

Paragraph 27 therefore safeguards statutory structure and prevents jurisdictional overreach.

(B) Paragraph 32 – Contextual Justice in Early GST Years

Paragraph 32 reflects judicial sensitivity.

The Tribunal observed:

• CGST Act is a relatively new statute.
• Early return filing systems were not fully stabilised.
• Manual processes and auto-population constraints existed.
• Human error was possible  .

The Tribunal consciously declined a pedantic approach and emphasised that where fraud is absent and entries are reflected in books, reconciliation deserves substantive consideration.

This paragraph will likely be cited in:

• Credit note timing disputes,
• Return mismatch cases,
• Early GST compliance litigation,
• Technical vs substantive compliance debates.

VI. Protection of Honest Compliance

The Tribunal emphasised that once fraudulent intent is negated, an honest taxpayer deserves a meaningful opportunity before being saddled with penalty and interest  .

The operative result was:

• Section 74 proceedings held unsustainable.
• Treatment under Section 73 by appellate authority set aside.
• Matter remanded to Proper Officer.
• Liberty granted to seek amendment within one month.
• Fresh adjudication directed under Section 73 after reasonable opportunity  .

VII. Jurisprudential Outcomes

This first GSTAT order establishes:

1. GSTAT is the final fact-finding authority.
2. Section 75(2) mandates remand where Section 74 fails.
3. Appellate conversion without remand is impermissible.
4. Absence of fraud collapses equal penalty under Section 74.
5. Return mismatch alone is not conclusive proof of short payment.
6. Early GST systemic constraints warrant pragmatic adjudication.

VIII. Conclusion: A Principled Institutional Beginning

The first GSTAT order is institution-building jurisprudence.

It preserves statutory sequencing.

It affirms appellate jurisdiction.

It recognises transitional compliance realities.

It protects honest taxpayers without diluting revenue authority.

For a Tribunal at inception, this is a balanced and assured beginning.

The GSTAT has commenced its journey with doctrinal clarity — and that clarity will shape the future of GST litigation.

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By Adv. G. Jayaprakash, Advocate (Former Central Excise Officer)