GSTAT: If Section 74 Fraud Charge Fails, Case Must Go Back To Proper Officer Cannot Be Converted To Section 73 In Appeal

GSTAT: If Section 74 Fraud Charge Fails, Case Must Go Back To Proper Officer Cannot Be Converted To Section 73 In Appeal

Introduction

In its first statutory second appeal judgment and first fully paperless decision delivered after virtual hearings, the Goods and Services Tax Appellate Tribunal (Principal Bench) has held that where allegations under Section 74 of the CGST Act (fraud, suppression or wilful misstatement) fail, the proceedings cannot be converted into a normal short-payment case under Section 73 and decided at the appellate stage. The Bench led by President Justice (Retd.) Dr. Sanjaya Kumar Mishra clarified that the power to re-determine tax lies exclusively with the original Proper Officer.

Factual Background

The decision arose from a second appeal filed by Sterling and Wilson Private Limited against a demand of ₹27,06,634 for FY 2018–19. The department alleged that the company had disclosed lower tax liability in GSTR-3B (monthly summary return) than in GSTR-1 (detailed return). The Proper Officer invoked Section 74 of the CGST Act and confirmed tax, interest and an equivalent penalty on the premise of fraud or suppression.

In the first appellate proceedings, the authority recorded that there was no intention to evade tax by fraud or suppression. It observed that the appellant had disclosed the relevant transactions through debit/credit notes supported by invoices duly accounted for in its books, but discrepancies arose in periodical returns and annual reconciliation. Despite ruling out fraud, the appellate authority sustained tax and interest, reduced the penalty to 10 percent under Section 73(9), and effectively treated the matter as one under Section 73.

Procedural Background

The company carried the matter in second appeal before the GSTAT, challenging the appellate authority’s action in converting the proceedings from Section 74 to Section 73 without remanding the matter to the Proper Officer.

Issues

1. Whether proceedings initiated under Section 74 can be converted into Section 73 proceedings at the appellate stage.

2. Whether the appellate authority or tribunal has the power to re-determine tax once fraud allegations fail.

3. Whether the Tribunal’s jurisdiction in second appeal is confined to substantial questions of law.

Contentions

The appellant contended that once the finding of fraud or suppression was set aside, the very foundation of proceedings under Section 74 collapsed. It argued that such proceedings could not be converted into Section 73 proceedings at the appellate stage and that any fresh determination must be undertaken by the Proper Officer. The discrepancies, it was submitted, arose due to credit notes, advances and timing mismatches rather than any deliberate evasion.

The Revenue defended the appellate order and opposed remand, contending that the tax liability could be sustained under Section 73 even at the appellate stage.

Reasoning and Analysis

The Tribunal held that the power to re-determine tax lies solely with the original Proper Officer who issued the notice under Section 74(1). It observed that if fraud-related allegations fail and the case is found to fall under Section 73, the matter must be remitted to the Proper Officer for fresh determination. Neither the First Appellate Authority nor the Tribunal can undertake such re-determination directly.

The Bench clarified that the Tribunal’s jurisdiction in second appeal under the CGST Act is not restricted to substantial questions of law, noting that limitations similar to Section 100 of the Code of Civil Procedure are absent in the GST appellate framework.

The Tribunal also took note of the fact that the CGST/SGST regime was relatively new during the relevant period and that return filing systems were not fully stabilised, making human error plausible.

Decision

The GSTAT upheld the finding that the case did not fall under Section 74, thereby rejecting the allegation of fraud or suppression. However, it set aside the appellate authority’s action in converting the case into a Section 73 proceeding without remand. The matter was remanded to the Proper Officer for fresh determination under Section 73 after granting the appellant liberty to file an amendment petition within one month and directing that a reasonable opportunity of hearing be provided.

In this case the appellant was represent Mr. Joydip rang, Advocate.