Applicability of First Proviso or Second Proviso to Section 107(11) in Departmental Appeal

[vaibhav agrawal]

 Respected Experts,

A SCN under Section 73 was issued alleging excess ITC availment for FY 2017-18 and FY 2019-20 due to GSTR-3B vs GSTR-2A mismatch. The adjudicating authority dropped the entire demand.

The Department reviewed the order under Section 107(2) and filed an appeal before the Appellate Authority. In Form GST APL-03, the amount under dispute was shown as Rs. 3,36,146 (CGST Rs. 1,68,073 + SGST Rs. 1,68,073), which corresponds only to FY 2017-18.

Personal hearing notices were issued merely fixing dates of hearing. No notice communicated any proposal for reduction of ITC, enhancement of liability, recovery of tax, interest or penalty. The taxpayer appeared and filed written submissions. Discussions during hearing were confined to FY 2017-18.

Subsequently, the Appellate Authority, exercising powers under Section 107(11), set aside the Order-in-Original and confirmed reversal of ITC of Rs. 5,67,732 (FY 2017-18 and FY 2019-20), along with interest and penalty.

In these facts:

1. Is the case governed by the first proviso to Section 107(11) since the appellate order reduced ITC and imposed penalty without giving a reasonable opportunity of showing cause against the proposed order?
2. Is the second proviso to Section 107(11) attracted since the Appellate Authority held that ITC was wrongly availed and confirmed recovery without issuing any separate show cause notice?

1. Does the existence of the original Section 73 SCN and the departmental appeal under Section 107(2) satisfy/dispense with the notice requirement contemplated under the second proviso?
2. Does the fact that the departmental appeal quantified the dispute only for FY 2017-18 have any bearing when the Appellate Authority ultimately confirmed demand for both FY 2017-18 and FY 2019-20?

Which proviso would be applicable in the above facts and why?

AI Summary

Section 107(11) provisos and departmental appeal notice requirements in disputed input tax credit reversal Applicability of the provisos to Section 107(11) in a departmental appeal is questioned where an appellate order confirms reversal of input tax credit, interest and penalty beyond the amount quantified in the appeal. The issues are whether the first proviso applies when input tax credit is reduced and penalty imposed without a reasonable opportunity of showing cause, and whether the second proviso applies when wrongly availed input tax credit is confirmed recovered without a separate show cause notice. The effect of the original Section 73 notice, the departmental appeal under Section 107(2), and the limited appeal quantification is also raised.