GST UPDATE

Hon’ble Authority: GSTAT, Kolkata Bench
Case Title: Power Tech Global Private Limited v. Commissioner, CGST & CX
Appeal No. & Citation: APL/62/KLK/2026, APL/74/KLK/2026 & APL/75/KLK/2026

Hon’ble Judge(s)	Hon’ble Shri S.G. Chattopadhyay and Hon’ble Shri Bijoy Kumar Kar
Date of Order	05.08.2026
Outcome	Appeal allowed in Part

Brief Facts of the Case

The respondent was engaged in manufacturing electrical equipment and also sold MEIS (Merchandise Exports from India Scheme) Duty Credit Scrips received as export incentives. During scrutiny, the Department noticed that the assessee had treated the sale of Duty Credit Scrips as exempt supplies but had not reversed proportionate Input Tax Credit under Section 17 read with Rules 42 and 43. According to the Department, since the sale of Duty Credit Scrips) had been included in total turnover as exempt supply, common ITC attributable to exempt supplies ought to have been reversed. Therefore, the proceedings were initiated under Section 74, alleging wilful suppression of facts. The adjudicating authority confirmed the demand along with interest and equal penalty. However, the First Appellate Authority, however, completely set aside the demand by holding that Notification No.14/2022 inserting clause (d) in Explanation 1 to Rule 43 was clarificatory and retrospective, thereby excluding the value of Duty Credit Scrips from exempt turnover while computing ITC reversal. Aggrieved, the Department filed appeals before GSTAT.

Relevant Section / Rule / Notification

Section 17 read with Rules 42 and 43 of the CGST Act, 2017
Notification No.14/2022 dt: 05.07.2022
Section 74 of the CGST Act, 2017

Question before Hon’ble Authority

Whether the appeals were barred by CBIC Circular No. 207/1/2024-GST dated 26.06.2024, which fixes a Rs. 20,00,000/- monetary threshold for Revenue appeals to the GSTAT?
Whether the first appellate authority was correct in giving retrospective effect to Notification No. 14/2022 (05.07.2022) — i.e., in excluding duty credit scrips from "exempt supply" value for the 2017-2020 period, four years before the amendment existed?
Whether, on the facts, the Revenue was legally correct in invoking Section 74(1) rather than the ordinary Section 73?

Brief Arguments by Appellant - Revenue

On Issue of Maintainability of Appeal based on Monetary Limit

Monetary Limit Cannot Be Determined Appeal-wise Where a Composite Order is Passed

Reliance was placed on Paragraph 3(viii) of CBIC Circular No. 207/1/2024-GST dated 26.06.2024, which specifically provides that where a composite order disposes of more than one appeal or demand notice, the monetary threshold is required to be determined with reference to the aggregate amount involved in all the appeals, and not with reference to each individual appeal separately.

Present Appeal Falls Within the Exceptions Carved Out Under the Circular

As per Paragraph 4(iv) of the Circular, question relating to the interpretation of the CGST Act, the CGST Rules and Notification No. 14/2022, besides being an issue of recurring nature affecting numerous taxpayers. The Circular itself provides that in such cases involving interpretation of statutory provisions or recurring issues, the prescribed monetary limits shall not apply.

Appeal filed in line with the legislative intent

The object behind issuance of the Circular was merely to discourage unnecessary litigation and not to prohibit appeals involving substantial questions of law. In the instant case, the Department had carefully examined the merits of the case and found that it involved important legal issues concerning the interpretation of Rule 43 and Notification No. 14/2022.

On Issue of Retrospective Applicability of Notification No.14 of 2022 dated 05.07.2022

The Revenue held that the First Appellate Authority wrongly treated the amendment in Notification No.14/2022 dated 05.07.2022 as retrospective in nature. Since the Notification itself specifically prescribed its date of enforcement as 05.07.2022, the appellate authority could not rewrite the legislative intent by extending the benefit to transactions undertaken during the period 2017-2020.
Duty Credit Scrips were exempt supplies during the disputed period

The Revenue argued that after issuance of Notification No.35/2017-Central Tax (Rate) dated 13.10.2017, Duty Credit Scrips became exempt supplies under Section 11 of the CGST Act. Consequently, during the disputed assessment period, the value of such exempt supplies necessarily formed part of the aggregate exempt turnover for the purposes of Rule 43. Since no statutory exclusion existed during the relevant period, the taxpayer was legally required to reverse proportionate common ITC attributable to such exempt supplies.

Legislative intent clearly demonstrates prospective applicability

Government brought the amendment into force only from 05.07.2022. This clearly demonstrated the legislative intention that the benefit was prospective and not retrospective. Therefore, neither the appellate authority nor the Tribunal could enlarge the scope of the amendment beyond what was expressly provided by the delegated legislation.

On Issue of Invocation of Extended Period of Limitation

Wrong availment of ITC justified invocation of Section 74

The revenue held that the taxpayer had wrongly availed ITC attributable to the supply of Duty Credit Scrips. According to the Department, such ITC was not legally available for the relevant period because the benefit of clause (d) inserted in Explanation 1 to Rule 43 could not be applied retrospectively. The taxpayer could not rely upon Notification No.14/2022 to justify ITC availed during 2017-2020. The Department's held that the circumstances warranted the application of the more stringent provisions of Section 74.

Brief Arguments by Respondent - Taxpayer

On Issue of Maintainability of Appeal based on Monetary Limit

Departmental Appeal Barred by the Monetary Limit Prescribed in the CBIC Circular

The Circular specifically fixed a monetary limit of ?20 lakhs for filing appeals before the GST Appellate Tribunal. Since the amount involved in the present appeal was below the prescribed limit, the Department was barred from preferring the appeal before the Tribunal.

Circular is binding upon the Department

In accordance with the powers conferred under Sections 120(1) and 168 of the CGST Act, pursuant to the recommendations of the GST Council, the Circular possessed statutory force and was binding upon all officers of the Department. Therefore, the Department has wrongly filed the appeal in violation of the Circular. In view of the same, the purpose of the Circular to reduce unnecessary litigation, will also get defeated.

On Issue of Retrospective Applicability of Notification No.14 of 2022 dated 5.07.2022

Amendment is beneficial and therefore retrospective

Since the amendment was beneficial in nature, it deserved to receive retrospective operation.

Reliance upon Supreme Court precedents

Reliance was placed on four Supreme Court decisions to hold that clarificatory, curative or beneficial amendments ought to receive retrospective operation so that taxpayers are not denied legitimate benefits merely because the amendment was introduced subsequently. These judgments are discussed separately in detail in the later part of this update.

On Issue of Invocation of Extended Period of Limitation

Dispute was interpretational in nature

The dispute was essentially regarding the interpretation and applicability of clause (d) to Explanation 1 of Rule 43. The taxpayer genuinely believed that the benefit of the amendment was available retrospectively. A difference in interpretation of a statutory provision cannot automatically be converted into a case of fraud or wilful suppression.

All transactions were disclosed in the statutory returns

The taxpayer specifically pointed out that the taxpayer had regularly filed all the statutory returns. Therefore, the Department was fully aware that the taxpayer was selling Duty Credit Scrips and was availing ITC in relation to its business activities. There was consequently no deliberate non-disclosure of material facts.

Section 74 cannot be invoked in absence of essential ingredients

There was no material on record demonstrating that the taxpayer had deliberately concealed information or manipulated its returns with the intention of evading tax. Thus, the essential jurisdictional ingredients for invoking Section 74 were absent. The taxpayer also relied upon CBIC Instruction No. 05/2023-GST dated 13.12.2023, which specifically cautions against mechanical invocation of Section 74

CasesRelied Upon

Case Law	Citation
Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, Meerut	(2005) 7 SCC 749.

Findings and Judgement

On Issue of Maintainability of Appeal based on Monetary Limit

Circular Is Binding Upon Departmental Officers but Not Upon Judicial Authorities

The Tribunal accepted that the Circular had statutory backing since it had been issued under Sections 120 and 168 of the CGST Act. However, it clarified that these statutory provisions empower the CBIC only to issue instructions to officers of the Department. Accordingly, while such Circulars are binding upon departmental officers, they do not bind judicial authorities such as the GST Appellate Tribunal. In support of this proposition, the Tribunal relied upon the decision of the Principal Bench of the GSTAT in M/s Dow Chemical International Pvt. Ltd., wherein it was held that CBIC Circulars possess only persuasive value before judicial forums and cannot control or restrict the Tribunal's adjudicatory powers.

Appeal Maintainable in accordance with the Circular

Upon careful analysis of the various provisions of the Circular, the Tribunal emphasized that the Circular must be read as a whole and not in isolated parts. It was held that Revenue had consciously considered both Paragraph 3(viii) dealing with composite orders as well as the relevant exclusion contained in the Circular before deciding to institute the present appeal. The appeals arose from a composite order, the aggregate tax involved exceeded the prescribed monetary limit and the controversy related to interpretation of statutory provisions having recurring implication was accepted.
Consequently, the appeal was held to be maintainable.
On Issue of Retrospective Applicability of Notification No.14 of 2022 dated 05.07.2022

Legislative history demonstrates prospective intent
The Tribunal first analysed the legislative evolution of the relevant provisions. It observed that Duty Credit Scrips were not originally notified as exempt supplies under Notification No.2/2017. It was only through Notification No.35/2017 dated 13.10.2017 that Duty Credit Scrips were included as exempt supplies. Thereafter, nearly four years later, clause (d) was inserted into Explanation 1 to Rule 43 through Notification No.14/2022 excluding their value from exempt turnover while computing ITC reversal. This legislative chronology itself indicated that the exclusion was consciously introduced as a new benefit rather than being an explanation of the earlier legal position.
Notification expressly prescribes prospective commencement
The Tribunal attached considerable importance to the commencement clause contained in Notification No.14/2022. It observed that the Notification specifically declared that the amendment would come into force from the date of its publication in the Official Gazette, namely 05.07.2022. When delegated legislation itself prescribes the date of commencement, courts cannot substitute another date merely because the amendment is beneficial.
Rule-making authority deliberately refrained from exercising retrospective power
The Tribunal noted that Section 164(3) expressly empowers the Government to frame rules retrospectively. Therefore, if retrospective application had been intended, nothing prevented the Government from expressly providing so. The conscious omission to exercise such power clearly reflected the legislative intention that the amendment should operate only prospectively.
Amendment is neither clarificatory nor curative
The Tribunal categorically rejected the taxpayer's submission that clause (d) merely clarified the earlier Rule. It observed that prior to 05.07.2022 no statutory provision excluded the value of Duty Credit Scrips while computing exempt turnover. The amendment introduced an entirely new statutory benefit. It neither explained any ambiguity nor removed any drafting defect. Consequently, it could not be characterised as clarificatory or curative.
ITC is a concession and not a vested right
The Tribunal further observed that entitlement to Input Tax Credit flows only from the statute. Since ITC is a statutory concession, the taxpayer cannot claim retrospective enforcement of a benefit which the Legislature itself intended to confer only prospectively.
Supreme Court judgments distinguishedlTribunal examined each Supreme Court judgment relied upon by the taxpayer and concluded that none justified retrospective application in the present case.

Sedco Forexmerely reiterates that the law applicable is the law prevailing during the relevant assessment year unless the amendment is expressly or by necessary implication retrospective. The present amendment changed the substantive law and therefore could not be applied retrospectively.
Hitendra Vishnu Thakurlays down that amendments affecting substantive rights are presumed to operate prospectively, whereas only procedural provisions ordinarily operate retrospectively. Since Notification No.14/2022 created a new substantive benefit, the principle actually supported the Revenue.
Suchitra Componentsconcerned retrospective application of a beneficial departmental circular and not a statutory amendment introducing a fresh benefit. Hence the decision was distinguishable.
CCE v. Mysore Electricals Industries Ltd., relied upon in Suchitra Components, related to prospective operation of reclassification after issuance of a show cause notice and had no bearing on interpretation of Rule 43.
Allied Motorsinvolved a curative amendment inserted to remove an unintended hardship under Section 43B of the Income-tax Act. In contrast, clause (d) to Rule 43 neither removed any ambiguity nor cured any legislative defect.

On Issue of Invocation of Extended Period of Limitation

Mere wrong availment of ITC cannot automatically constitute fraud or suppression

It observed that Section 74 is attracted where tax has not been paid, has been short paid, refund has been erroneously granted or ITC has been wrongly availed/utilised "by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax."Thus, according to the Tribunal, mere non-payment of tax or wrongful availment of ITC is not sufficient. There must be an additional element offraud, wilful misstatement or suppression coupled with an intention to evade tax.

Sale of Duty Credit Scrips was itself disclosed

The Tribunal therefore found that the Department was not dealing with a situation where the taxpayer had hidden the existence of the transactions. The Revenue knew that the taxpayer had supplied Duty Credit Scrips during the relevant financial years. This disclosure was significant because when the underlying facts are known to both sides, it becomes difficult to allege deliberate suppression of those facts.

Bona fide interpretation of Rule 43 negates allegation of deliberate suppression

Although the Tribunal ultimately rejected the taxpayer's interpretation and held that Notification No.14/2022 was prospective, it found that the taxpayer's conduct was based upon a particular interpretation of the law. A legal position which is subsequently rejected by the adjudicating authority or appellate forum does not, by itself, establish fraud or wilful suppression.
Accordingly, the GSTAT held that the SCN issued under Section 74(1) was not sustainable.

Invocation of Section 75 (2)

The Tribunal, however, did not hold that the underlying tax liability itself stood extinguished. It invoked Section 75(2), which specifically provides that where an appellate authority or Tribunal concludes that a notice under Section 74 is not sustainable because fraud, wilful misstatement or suppression has not been established, the proper officer shall determine the tax liability as if the notice had been issued under Section 73(1).

Author’s Comment

The judgment is significant because it departs from the usual understanding that when an Explanation is inserted into an existing provision, it is generally viewed as clarificatory and, therefore, capable of retrospective application. The present decision demonstrates that the mere form of an amendment whether introduced as an Explanation or otherwise is not decisive in determining its retrospective operation.
The GSTAT has instead examined the legislative history, manner of implementation and intention of the Government. It noted that the Government had the specific power under Section 164(3) of the CGST Act to give retrospective effect to the amendment. However, Notification No. 14/2022 itself expressly provided that the amendment would come into force from 05.07.2022. The Tribunal therefore reasoned that if the Government intended the benefit to operate retrospectively, it could have specifically provided for such retrospective effect. The decision thus establishes an important practical principle: a beneficial or taxpayer-friendly amendment cannot automatically be treated as retrospective merely because it is inserted by way of an Explanation. The nature of the amendment, its legislative history, the power available to the rule-making authority and, most importantly, the manner in which the Government has prescribed its commencement must all be examined.

CA Pradeep Jain_

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GST Update / 2026-27/0071

GST UPDATE

Brief Facts of the Case

Relevant Section / Rule / Notification

Question before Hon’ble Authority

Brief Arguments by Appellant - Revenue

Brief Arguments by Respondent - Taxpayer

CasesRelied Upon

Findings and Judgement

Author’s Comment

Opinion

Author’s Comment

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