CASE STUDY

BRIEF FACTS OF THE CASE:

A Departmental audit was conducted in the case of M/s PSV Polymers Pvt Ltd. (hereinafter referred to as Appellant) for the period July 2017 to March 2020. Consequently, various discrepancies were noticed during the audit. Later on, a show cause notice under Section 74 was issued with regard to the discrepancies observed during the audit. The appellant gave a detailed reply against the impugned show cause notice. However, the same was not considered by the adjudicating authority and the demand was confirmed. Being aggrieved by the impugned order, appellant preferred an appeal before the Commissioner (Appeals).
CA Pradeep Jain, authorised representative of the Appellant appeared for the personal hearing to present the submissions and relevant explanations on behalf of the Appellant.
For better understanding and clarity, a tabular presentation of the submissions made in respect of each of the audit para and the judgement given in respect to respective paras have been attached hereunder:

Discrepancies	Submission by Appellant	Findings & Judgement
Para-1: Interest on late filing of GSTR -3B during the F.Y. 2017-18, F.Y. 2018-19 and F.Y. 2019-20 on late payment of tax	The said liability of interest was already discharged via DRC-03. Copy of DRC-03 was also provided. However, the adjudicating authority failed to consider the payment made while passing the impugned order.	Upon perusal of the copy of DRC-03 as produced by the appellant, the contention of the appellant was accepted. Thus, the demand raised in this matter stands settled.
Para-2:Interest on short payment of tax	That the interest involved was already paid. The fact was also mentioned in the reply filed against the audit para, however, the same was not considered in the impugned order-in-original.	It was found that the appellant had discharged the liability of the said interest via DRC-03. Thus, the demand in the instant subject matter was set aside.
Para-3:Interest on reversal of ineligible/blocked ITC claimed	In this regard, it was contended that the applicable interest on the credit availed during the F.Y. 2017-18 to 2018-19 on reversal of ineligible/ blocked credit had already been paid via various DRC-03 and also produced the same for consideration while submitting reply to the impugned show cause notice.	Upon perusal of the copies of DRC-03 as produced by the appellant, the contention of the appellant was accepted and the demand raised in this regard, was set aside.
Para-4:Interest during F.Y. 2017-18 to 2019-20 on ITC availed on the strength of invoices issued by the supplier but failed to pay value along with tax thereon to the supplier within time limit of 180 days under Section 16(2) of the CGST Act 2017;	It was contended that the payment has already been paid to the supplier. As the payment has already been made, therefore, the appellant became re-eligible to avail ITC under the provision of Rule 37 of CGST Rules. Hence, the instant exercise of first reversing the credit and availing the same again would be futile exercise as the situation is revenue neutral.	The appellant's contention that the transaction is revenue neutral is misconceived and legally untenable as the benefit of re-availment of such input tax credit is available only after the payment of the value of supply along with the tax to the supplier and only after compliance with the statutory requirement of reversal.Thus, there is a clear time gap during which the Government is deprived of the legitimate revenue, and the appellant enjoys the benefit of inadmissible credit. Consequently, the subsequent payment to the supplier and re-availment of ITC cannot render the initial contravention revenue neutral. Furthermore, as per section 16(2), no registered person shall be entitled to the credit of any input tax in respect of any supply unless, the amount towards the value of supply along with tax thereon within the period of 180 days from the date of issue of invoice by the supplier. Therefore, in view of above, it was held that as the appellant made payment after 180 days, they are eligible to re-avail the credit of the said ITC as per third proviso to Section 16(2) of the CGST Act 2017. However, the appellant shall remain liable to pay interest under Section 50(1) of the CGST Act 2017.
Para-5: ITC availed on strength of invoices issued by supplier but failed to pay value along with tax thereon to the supplier.	In continuation of above, appellant argued that the payment has already been paid to the supplier. As the payment has already been made, therefore, the appellant became re-eligible to avail ITC under the provision of Rule 37 of CGST Rules. Hence, the instant exercise of first reversing the credit and availing the same again would be futile exercise as the situation is revenue neutral. For this reliance was placed upon the following judicial pronouncements: **M/S TEREX INDIA PVT. LTD. VERSUS THE COMMISSIONER OF GST & CE [2021-TIOL-696-CESTAT-MAD] COMMISSIONER OF C. EX., VADODARA VS NARMADA CHEMATUR PHARMACEUTICALS LTD. [2005(179) E.L.T. 276 (S.C.)]**	In continuation to the above finding, it was observed that the appellant had availed ITC on the strength of invoices issued by the supplier, whose payment has been made after 180 days. Hence, the appellant is held eligible to claim the input tax credit of the said ITC. However, remains liable to pay interest for the differential period from the date of availment of ITC till the payment made to their corresponding suppliers. Hence, the demand of interest with respect to the instant subject matter stands raised.
Para-6: ITC on account of difference of ITC claimed in GSTR-3B and GSTR-2A return	Appellant produced detailed reconciliation for difference and contended that of the demand raised under CGST and SGST head was deposited by way of reversal and adjustments made in the F.Y. 2018-19. For the demand raised under IGST head, the difference arose due to non-consideration of IGST credit arise from import of goods. The appellant contended that the import-related ITC was supported by Bills of Entry and the credit had been correctly claimed in GSTR-3B.	The contention of the appellant was accepted pertaining to the reversal made under CGST and SGST head. Accordingly, appellant was held liable for the remaining balance amount which was also accepted by the appellant in his contention. Further, Section 74(1) was referred and it was held that in the instant case, appellant had already deposited self-assessed tax even though belatedly by way of reversal and non-availment of ITC. Along with that, no fraud or wilful mi-statement or suppression of act was found. The demand for tax was not sustainable as the same was already paid before the issuance of show cause notice. Hence, the demand raised was brushed aside. However, with regard to interest on delayed payment of interest, Section 75(12) was referred read with Section 50. It was held that excess availed ITC is liable to be recovered along with applicable interest from the date of tax till the actual date of payment. Hence, the excess availed ITC which was unpaid was held to be recoverable along with interest and penalty. With regard to the excess availed ITC under IGST head in F.Y. 2018-19, the Commissioner verified the Bills of Entry and the ITC details reported in GSTR-3B and GSTR-9. After considering the import-related ITC, ITC already reversed, and credit carried forward from FY 2017–18, the Commissioner concluded that there was no excess availment of IGST ITC. For the F.Y. 2019-20, it was observed that the ITC available matches with the ITC claimed in GSTR-3B , thus the appellant had not excess availed ITC. However, upon verification of table 8 of GSTR-9 it was observed that, a small amount was excessively claimed by the appellant. Hence, it was held that the same was recoverable along with applicable interest and penalty.
Para-7: ITC availed on the Invoices issued by the Supplier who has not filed their GSTR-3B return and failed to pay tax to the government.	The appellant contended that ITC cannot be denied to the appellant because supplier has failed to pay the tax to government exchequer. Appellant cannot be asked to reverse the ITC before the revenue department has initiated taken action against the supplier. For this reliance was placed upon the judgement in the case of SUNCRAFT ENERGY PRIVATE LIMITED AND ANOTHER V. ASSISTANT COMMISSIONER, STATE TAX, BALLYGUNGE CHARGE AND OTHERS [2023-TIOL-917-HC-KOL-GST] *G.S. ALLOY CASTINGS LTD. VERSUS COMMISSIONER OF C. EX., GUNTUR [2016 (331) E.L.T. 310 (Tri. – Bang.)]* *RAJAN ENGINEERING WORKS VERSUS COMMR.* *OF C. EX., DELHI-IV, FARIDABAD [2012 (279) E.L.T. 306 (Tri. – Del.)]* *SHAKTI STEEL ROLLING MILLS VERSUS COMMISSIONER OF C. EX., CHANDIGARH [2014 (304) E.L.T. 108 (Tri. – Del.)]* *State of Karnataka v. M/s. Ecom Gill Coffee Trading Pvt. Ltd.[2023-TIOL-18-SC-VAT]***	It was observed that appellant had availed ITC in violation of the Section 16(2)(c). Further, appellant also failed to provide any documentary proof like copy of invoice, proof of payment to their supplier and proof of receipt to substantiate that the appellant has availed such credit as per conditions mentioned in Section 16 of the CGST Act. Further, reliance placed on Hon’ble Calcutta High Court judgement in the case of Suncraft Energy Pvt Ltd. v. Assistant commissioner of State Tax is also not acceptable as on detailed examination of GST registration details of the alleged supplier, it was observed that supplier has only filed GSTR-1 and GSTR-3B till November 2017 and registration was cancelled thereafter and no business activity is observed. Invoices issued by the said supplier are not available in appellants GSTR-2A as they neither filed GSTR-1 nor GSTR-3B for the month of December 2017. Additionally, the Government has already introduced a circular no. 183/15/2022-dated 27.12.2022 where by the alleged supplier can issue the certificate in case the supplier has not filed returns properly. Therefore, contention of appellant is not sustained and ITC amount is held recoverable along with applicable interest and penalty as per impugned order.
Para-8:Non-reversal of ITC under Rule 42	Appellant contended that the impugned order in original made superfluous computations in this regard and has confirmed the demand on extremely higher side. This is substantiated by the fact that figure of common credit taken by the impugned order while confirming the demand is some random figure. Furthermore, appellant provided the computation of the reversals made. An analysis of this annexure clarifies that the reversal computed is on extremely higher side.	Appellate authority observed that neither during the course of audit nor during the adjudication proceedings was any invoice-wise determination of the common ITC undertaken. The impugned order also does not contain any invoice wise details forming basis for demand. Hence, it was held that the findings of the adjudicating authority does not possess validity, resulting into dropping of demand raised in the said matter. However, the appellant is liable to pay the accepted liability by the appellant himself along with applicable interest and penalty in view of the Rule 42.
Para 9 :Imposition of general penalty under Section 125	Penalty under section 125 can be imposed only in cases where no specific penalty has been prescribed in the act which is not the matter in the instant case.	It was held that as sufficient penalties have already been imposed against each para discussed above. Further, the penalty imposed by the adjudicating authority is found to be excessive and disproportionate.

Additional Submissions

Impugned order has been passed in contradiction to the High Court judgement:

In this regard, it was contended that impugned order in original has been passed confirming the allegations raised in the show cause notice which was issued as a result of audit proceedings conducted for the F.Y. 2017-18, 2018-19, 2019-20. Reliance was placed upon the Karnataka High Court judgement in the case of M/S VEREMAX TECHNOLOGIE SERVICES LIMITED VERSUS THE ASSISTANT COMMISSIONER OF CENTRAL TAX BENGALURU. [2024-TIOL-1835-HC-KAR-GST] in which it has been held that single notice cannot be issued for multiple years. Thus, the impugned order is in contravention to the judgement of the Hon’ble Karnataka High court.

Non-speaking order is liable to be quashed:

That the impugned order has failed to consider the fact that the appellant has already made the payment of interest as involved in para 1,2 and 3 specified above. The said fact was mentioned by the appellant in the reply to the show cause notice. However, this fact was not considered by the adjudicating authority and impugned order confirmed the demand which did not existed at all. For this reliance was placed upon the decisions in the case of :

STATE OF HIMACHAL PRADESH v. SARDARA SINGH [2008-TIOL-160-SC-NDPS] and COMMISSIONER OF CENTRAL EXCISE, BANGLORE v. SRIKUMAR AGENCIES [2008(232)E.L.T.577(S.C.)]
COMMISSIONER OF CENTRAL EXCISE, BANGALORE VERSUS SRIKUMAR AGENCIES [2008 (232) E.L.T. 577 (S.C.)]:-

Demand of interest is not justified:

Based on the submissions placed on record, when the demand itself is not sustainable, the question of interest does not arise.

Invocation of Section 74 is not justified:

Appellant argued that on plain reading of Section 74 it is crystal clear that this section is invokable only if there is any fraud, wilful misstatement or suppression of facts with an intention to evade payment of tax. This section is grave and the department has to prove the serious breach of law in order to invoke extended period of limitation. However, in the instant case, the department has casually invoked this section ignoring the fact that all the paras were made on basis of audit conducted at the premise of the appellant. For this reliance was placed upon

RAINBOW INDUSTRIES V. CCE [1994(74) ELT 3 (SC)]
CHEMPHAR DRUG & LIMITS REPORTED IN (2002-TIOL-266-SC-CX)
NESTLE INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH [2009 (235) E.L.T. 577 (S.C.)]
COSMIC DYE CHEMICAL VERSUS COLLECTOR OF CENTRAL EXCISE, BOMBAY [1995 (75) E.L.T. 721 (S.C.)]

Final Finding of the Appellate Authorities on Invocation of Section 74
With regards to the invocation of Section 74, it was observed that both sections, Section 74 and 122(2)(b) can be invoked only in cases where there is a fraud or wilful mis-statement or suppression of facts to evade tax. Such sections cannot be invoked merely on account of non-payment/non-reversal of GST, without specific element of fraud or wilful mis-statement or suppression of facts to evade tax. Along with that, Instruction No. 05/2023-GST dated 13.12.2023 was referred and reliance was placed upon the judgement in the case of M/s Uniworth Textiles Ltd. v. Commissioner of Central Excise Raipur [2013(1)TMI 616-Supreme Court] and it was held that the invocation of Section 74 was out of context therefore, proceedings under Section 73 would be correct recourse to adjudicate the matter. Accordingly, by virtue of Section 75(2), the order-in-appeals was issued with a direction to the original adjudication authority to pass a fresh order in original after hearing the case to re-determine the GST payable along with penalty payable under Section 73 along with applicable interest under Section 50.

AUTHOR’s COMMENT:

In the instant case, the Appellate Authority, by virtue of Section 75(2) of the CGST Act, 2017, has sent the matter back to the adjudicating authority for redetermination of the tax liability under Section 73. This raises an important question among GST professionals: when Section 107(11) expressly prohibits the Appellate Authority from referring a case back to the adjudicating authority, does Section 75(2), which requires the proper officer to determine the tax payable in specified circumstances, contradict this restriction?
To understand the interplay between these provisions, it is important to distinguish between remand and redetermination. Section 107(11) empowers the Appellate Authority to confirm, modify or annul the impugned order, but expressly prohibits it from referring the case back to the adjudicating authority for fresh adjudication. The legislative intent is to ensure that the appellate authority decides the dispute instead of sending the entire matter back for reconsideration. Accordingly, a general remand cannot be permitted under Section 107(11).
Section 75(2), however, addresses a specific situation. Where the Appellate Authority, Appellate Tribunal or Court concludes that the ingredients necessary for invoking Section 74, such as fraud, wilful misstatement or suppression of facts to evade tax, have not been established, the proper officer is required to determine the tax payable by treating the notice as one issued under Section 73. Thus, the failure of the demand under Section 74 does not automatically extinguish the underlying tax liability. The liability that remains legally sustainable under Section 73 may still require determination in accordance with law.
This distinction was considered by the GST Appellate Tribunal in M/s Sterling & Wilson Pvt. Ltd. v. Commissioner, Odisha Commissionerate of CT & GST & Ors., Appeal No. APL/1/PB/2026, decided on 11.02.2026 (2026-TIOL-01-GSTAT-DEL-PB). The Tribunal recognised that, where the invocation of Section 74 is unsustainable, the liability under Section 73 is required to be determined by the proper officer in terms of Section 75(2), rather than being quantified by the First Appellate Authority itself. The decision underscores that the statutory determination of the surviving tax liability is the responsibility of the proper officer.
Therefore, Section 75(2) should not be interpreted as conferring a general power of remand upon the Appellate Authority or as overriding the restriction contained in Section 107(11). Rather, the two provisions must be read harmoniously. Section 107(11) prohibits the Appellate Authority from remanding the case for fresh adjudication, whereas Section 75(2) prescribes a statutory consequence where the essential ingredients for invoking Section 74 are not established. The obligation to determine the surviving liability under Section 73 flows from the statute itself.
The distinction is particularly important because redetermination under Section 75(2) cannot become an opportunity for the adjudicating authority to reopen the entire dispute. The authority must act within the scope of the statutory provision and the findings recorded by the appellate forum. It cannot reconsider concluded issues, revive the unsustainable grounds for invoking Section 74, or undertake an unrestricted de novo adjudication.
In simple terms, sending a matter back to the proper officer does not always amount to a prohibited remand. The key difference lies in the purpose of sending the matter back. Section 107(11) prohibits sending the case back for fresh adjudication, whereas Section 75(2) requires the proper officer to determine the tax liability under Section 73 when the conditions for invoking Section 74 are not satisfied. Thus, both provisions can operate together, provided the redetermination is limited to determining the surviving tax liability and does not involve reconsidering the entire case. This interpretation reconciles the two provisions while preserving the express prohibition against remand under Section 107(11).

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PJ case study/2026-27/15

CASE STUDY

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