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

Input tax credit appellate notice requirements and jurisdictional limits under GST determine whether adverse variation is sustainable.
Application of the first and second provisos to Section 107(11) depends on whether the Appellate Authority proposes to reduce input tax credit, enhance liability, or confirm recovery without a specific opportunity to show cause. Mere hearing notices do not satisfy that safeguard. The appellate jurisdiction is confined to the subject matter and period placed in dispute in the departmental appeal, and confirmation of demand beyond that scope raises a jurisdictional objection. The original show cause notice and departmental appeal do not substitute for a fresh notice before an adverse appellate order.