GST input tax credit mismatch without fraud must proceed under Section 73, and a Section 74 classification cannot stand.

Madras HC held that a GST demand based on mismatch of input tax credit, without allegations of fraud, wilful misstatement, suppression of facts, or intent to evade tax, must be proceeded with under Section 73 and not Section 74, in view of Section 75(2). The show cause notice and summary order were treated as Section 73 proceedings, and the assessment order invoking Section 74 was set aside with directions for fresh adjudication under Section 73. Because the assessment was wrongly classified as Section 74 action, the rejection of the Section 128A application also could not survive and was set aside, with liberty to file a fresh application after the new order.

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Issues: (i) Whether the proceedings and assessment order were rightly invoked and concluded under Section 74 of the applicable GST enactments, or whether they ought to have been proceeded with under Section 73; (ii) Whether rejection of the application under Section 128A was sustainable.

Issue (i): Whether the proceedings and assessment order were rightly invoked and concluded under Section 74 of the applicable GST enactments, or whether they ought to have been proceeded with under Section 73.

Analysis: The show cause notice was issued under Section 73 and dealt with defects relating to excess input tax credit. The notice contained a comparison of ITC claimed in GSTR-3B with available ITC as per GSTR-2A, and did not disclose fraud, wilful misstatement, suppression of facts, or an intent to evade tax. The summary order also described itself as an order under Section 73, while the detailed order relied on failure to establish the ITC claim and did not expressly or impliedly contain the ingredients of Section 74. In light of Section 75(2), the proceedings were required to be initiated and concluded under Section 73.

Conclusion: The invocation of Section 74 was unsustainable, and the assessment order was set aside with a direction for fresh proceedings under Section 73.

Issue (ii): Whether rejection of the application under Section 128A was sustainable.

Analysis: Since the impugned assessment was found to have been wrongly treated as one under Section 74, the rejection of the application under Section 128A, which had followed that characterization, could not stand. The petitioner was also left at liberty to file a fresh application after the fresh order under Section 73.

Conclusion: The order rejecting the application under Section 128A was set aside.

Final Conclusion: The matter was remitted for fresh adjudication under Section 73, and the petitioner was permitted to pursue a fresh application under Section 128A in accordance with law.

Ratio Decidendi: Where the show cause notice and order disclose a demand for reversal of input tax credit without the elements of fraud, wilful misstatement, suppression of facts, or intent to evade tax, the proceedings must be treated as ones under Section 73 and not Section 74, and any collateral order premised on the contrary classification cannot survive.

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