TaxTMI 
TaxTMI 
Improper invocation of Section 74 is no more res integra
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....mproper invocation of Section 74 is no more res integra<br>By: - K Balasubramanian<br>Goods and Services Tax - GST<br>Dated:- 19-9-2026<br>Taxpayers must periodically check the GSTR 2B and reconcile appropriately to avoid allegation of suppression, though technically there is no suppression. I am prompted to write this article after going through the GSTAT order dated 15/09/2026 as reported in I-Nxt Versus Sandeep Banga, Commissioner, Bengaluru Zone & Ors. - 2026 (9) TMI 1186 - GSTAT BENGALURU Part one- the story: The premises of the taxpayer was visited by tax officials and the records pertaining to the period July 2017 to November 2021 were examined. It was detected that the taxpayer has availed excess credit without fulfilling....
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.... the requirements under section 16. The taxpayer admitted the same and on 18/01/2022 paid the entire ITC with applicable interest. The practicalities in incorrect invocation of section 74 was duly understood by the Government which made section 74 to be applicable only up to 31/03/2024. As this case pertains to the earlier period, the authorities issued the show cause notice on 28/02/2023 imposing 100% penalty despite the fact that 100% of tax with interest having been paid even before issuance of the SCN by invoking 74. The argument for 74 was that the taxpayer suppressed the facts even though all the facts were readily available in the respective GST Returns. Part two: The adjudicating authority passed the OIO on 17/01/2024 confirming ....
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....the 100% penalty as the taxpayer has not paid 15% penalty voluntarily. The crux of the case is that 15% penalty is attracted when 74 is properly invoked whereas despite the available time limit under 73 itself till 30/09/2023, the SCN was issued on 28/02/2023, not to take advantage on limitation period but to levy huge penalty. The taxpayer is convinced that there is no suppression or fraud or wilfil-misstatement whereas revenue has failed to prove otherwise. Part three: The taxpayer preferred the first appeal. The OIA was passed on 29/06/2024 by way of rejection of the appeal on the ground that there was no merit. The aggrieved taxpayer preferred the second appeal which was disposed on 15/09/2026 by way of allowing the appeal in total b....
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....y holding that invocation of 74 was unwarranted. While deciding so, the GSTAT considered the recent ruling of the Supreme Court in the matter of Tata Steel limited case. Over and above, four more high court rulings as well as one GSTAT ruling were also considered before disposing the appeal. Part four: Moral of the Story: The GST officials were free to invoke section 74 despite the fact that the same could be improper as there were no checks to control those improper invocation. GST is in place since 01/07/2017 and currently in its tenth year. The GSTAT was made operational only during September 2025 which has lead the unfortunate situation where the officers were not having any legal precedent which was binding on them. The days have go....
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....ne. The Supreme Court during the month of August 2026 has passed two landmark judgements on section 74 in favour of the taxpayer in the matters of GR Infra Projects as well as Tata Steels Limited. During the month of September itself, the case law is referred in high court orders as well as GSTAT orders making abundantly clear that section 74 is required to be applied only after establishing the necessary requirements of any one of the three ingredients. The best part is the explanation 2 to section 74 which was on suppression of facts and by applying that explanation, it was observed that there was no suppression. The crucial portion of the GSTAT order reads as "18) The term "suppression" is defined in explanation 2 in section 74 as mea....
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....ning non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing by the proper officer". There must be deliberate non-disclosure of facts or information in any return, statement, report or any other document required to be furnished by the tax payer under the Act or in case of failure to furnish any information by the tax payer. In the present case, suppression was alleged on the ground of mismatch and not non-disclosure. The excess availment of ITC was not due to default committed by the appellant but by the third-party supplier. Default ....
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....by a third-party supplier cannot be attributed to the appellant to sustain the charge of suppression. 19) In order to invoke Section 74, the authorities must establish a link between wrongful availment of ITC and the alleged fraud or wilful mis-statement or suppression of facts. Mere use of the language is not enough. In the case under appeal, the adjudicating authority and the appellate authority have not established any link between the mismatch and alleged suppression of facts. Dispute was not raised about the genuineness of the transaction or the suppliers. The payment of excess ITC with interest made prior to the issuance of show cause notice, pursuant to departmental verification, are governed by Section 73 of the Act, as the inten....
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....tion to evade payment of tax is absent. Conclusion (1) We therefore set-aside the order-in-appeal no. MYS-GST-000-APP-IA-05/2024-25 dated 29.6.2024 and hold that the imposition of penalty under section 74 is invalid and unjustified. (2) In the result, the appeal is allowed". Before parting: Though section 74 has no application as on date for the financial year commencing from 2024-25 onwards, the GST officials must restrain themselves from improper invocation of the same from now onwards for the applicable years . As and when any bench of GSTAT or High Court or the Supreme Court holds that section 74 is improperly invoked, in respect of any of the OIO or OIA passed on or after 15/09/2026, the same is in gross violation as all the t....
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....hree authorities orders which are now in public domain are binding on all the tax officials attached to both Central as well as State. While Artificial Intelligence is used for passing an adverse order on the taxpayer, the taxpayer also must vehemently argue the non -applicability of section 74, in line with the above six rulings. =============<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....