GST second appeal may examine facts; defective Section 74 demand was remanded for fresh determination under Section 73

Under the GST appellate framework, the Tribunal noted that a second appeal under Section 112 is not confined to substantial questions of law and may examine factual issues from the record. It also accepted that Section 74 could not be sustained without established fraud, wilful misstatement or suppression of facts. Relying on Section 75(2), it held that where a Section 74 notice fails on those ingredients, the tax must be re-determined as if the notice were under Section 73 by the proper officer. The matter was therefore remanded for fresh factual consideration and adjudication under the correct statutory framework.

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Issues: (i) Whether the Appellate Tribunal under Section 112 of the Central Goods and Services Tax Act, 2017 can examine questions of fact in a second appeal under the GST regime; (ii) whether the demand originally proceeded under Section 74 could be sustained in the absence of established fraud, wilful misstatement or suppression of facts, and whether the matter required remand for re-determination under Section 73.

Issue (i): Whether the Appellate Tribunal under Section 112 of the Central Goods and Services Tax Act, 2017 can examine questions of fact in a second appeal under the GST regime.

Analysis: The Tribunal contrasted the restricted second appeal jurisdiction under Section 100 of the Code of Civil Procedure, 1908 with the scheme of Section 112 of the Central Goods and Services Tax Act, 2017 and Rule 112 of the Central Goods and Services Tax Rules, 2017. It noted that the GST appellate framework does not impose the same limitation to substantial questions of law and that the Tribunal is competent to scrutinise factual issues arising from the record.

Conclusion: The Tribunal held that it can examine questions of fact in an appeal under Section 112.

Issue (ii): Whether the demand originally proceeded under Section 74 could be sustained in the absence of established fraud, wilful misstatement or suppression of facts, and whether the matter required remand for re-determination under Section 73.

Analysis: The Tribunal accepted the finding that the ingredients for Section 74 were not established, but also noted that the dispute regarding mismatch between GSTR-1 and GSTR-3B, credit notes, debit notes, annual return reconciliation and ITC reversal required fresh factual examination. It further relied on Section 75(2) of the Central Goods and Services Tax Act, 2017 to hold that where a notice under Section 74 is not sustainable for want of fraud or suppression, the proper officer must determine the tax as if the notice were under Section 73. Since such re-determination has to be undertaken by the proper officer, the matter could not be finally concluded at the appellate stage.

Conclusion: The Tribunal set aside the treatment of the matter as one under Section 73 at the appellate stage and remanded the case to the proper officer for fresh consideration under Section 73 after affording opportunity to the appellant.

Final Conclusion: The appeal succeeded to the extent that the impugned orders were interfered with on the reclassification issue and the matter was sent back for fresh adjudication by the proper officer under the correct statutory framework.

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