CASE STUDY

BRIEF FACTS OF THE CASE:

A Departmental audit was conducted in the case of M/s Shree Durga Construction (hereinafter referred to as Appellant) for the period July 2017 to March 2022. Consequently, various discrepancies were noticed by the audit team during the audit. Consequently, a show cause notice was issued with regards to the discrepancies observed during the audit. The appellant gave a detailed reply against the impugned show cause notice. However, the discrepancies were finalised by the adjudicating authority while passing his order. Being aggrieved by the 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 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: Excess ITC taken in Electronic Credit Ledger in comparison to Column 6J of GSTR-9 during the F.Y. 2017-18, 2019-20 and 2021-22 was already paid:-	That the same has already been reversed before issuance of show cause notice and this fact has also been accepted by the adjudicating authority. Further, that the imposition of Section 74 penalty by the impugned show cause notice is not valid read with Section 122(2)(b) of the CGST Act as the demand has already been paid even before the issuance of show cause notice.	In this regard, contention of the appellant was accepted, and it was held that there was no excess availment of ITC.
Para-2:Appellant was liable to pay interest due to non-payment of tax on invoices in the corresponding month;	The GST has already been paid on certain invoices in subsequent months instead of paying the same in tax period. The interest liability has already been discharged via DRC-03 and the same has already been appropriated	It was observed that the appellant had already paid GST on certain invoices in subsequent months and this fact is very well recorded in the impugned order itself. However, such tax was paid belatedly i.e. after the due date of GSTR-3B. In this regard, it was observed that the appellant had already made payment of tax via DRC-03. Hence, the demand of tax was dropped. With regard to interest, it was held that appellant is liable to pay interest from the due date of tax till the actual date of payment of interest. Since the appellant had already discharged the liability of interest via DRC-03, the same was appropriated to government exchequer.Further, it was observed that as the appellant had already deposited self-assessed tax through DRC-03 and GSTR-3B and that there was no excess availment of ITC. Hence, there was no fraud or wilful misstatement. Thus, in such case, Section 74 cannot be imposed.
Para-3:Short payment of tax liability as declared by the appellant in GSTR-1 and GSTR-3B for the F.Y. 2018-19.	In this regard, appellant has contended that the short payment of tax along with interest on account of liability as declared in GSTR-1 and GSTR-3B for the F.Y. 2018-19 has already been discharged via DRC-03. Hence, as there is no tax payable, the issuance of show cause notice is void ab initio.	It was observed that the appellant has already made payment of tax even though after the due date of GSTR-3B. Hence, the contention of the appellant was accepted. Further, no short payment of GST was observed with intend to evade tax with element of any fraud, or any wilful-misstatement or suppression of facts. Hence, penalty under Section 74 is not invokable. Further, with regard to interest, it was held that appellant is liable to pay interest from the due date of tax till the actual date of payment of interest. On perusal of records, it was found that the interest was not paid so the same remains recoverable.871qaz
Para-4:Non reversal of excess ITC taken in GSTR-3B vis-à-vis GSTR-2A during the F.Y. 2018-19, 2019-20 and 2020-21.	That the appellant has availed ITC of an invoice raised by a supplier which filed its return belatedly. However, such return was filed within the time limit prescribed by the statute. Hence, such ITC was claimed within the ambit of Rule 36(4) of CGST Rules as during the said period the abovementioned rule allowed 20% provisional credit of the eligible credit available. Hence, credit of input tax credit on the invoices of the said supplier is within the limit of 20% of ITC reflected in GSTR-2A.	This para has been bifurcated into three sub paras: In this regard, the contention of the appellant was accepted in respect to the late filing of return by one of the supplier of the appellant. Further, it was observed that supplier had filed GSTR-1 after the due dates, however, GSTR-3B for the instant period had been filed already. Along with that, it was observed that, Table 8A of GSTR-9 is designed to reconcile the ITC as per GSTR-2A with the ITC actually availed in GSTR-3B. Table 8A reflects the ITC available as per GSTR-2A which is auto populated based on supplier’s GSTR-1 filing upto the due date as prescribed under Section 16(4) of the CGST. In continuance Section 16 (5) was referred, as per which ITC is admissible if the return under Section 39 of the CGST Act is filed up to 30.11.2021. Further, Section 74 of the CGST Act was referred and it was observed that tax demand can be initiated if tax has not been paid or short paid with any element of fraud, wilful misstatement or suppression of facts. Hence, the underlying demand is not sustained, the interest and penalty levied in relation to the said demand are also not sustainable and therefore liable to be set aside. With regard to the excess availed ITC in F.Y. 2019-20, upon verification of DRC-03 copy provided by the appellant, it was observed that appellant had discharged tax liability. With regard to excess availed ITC in 2020-21, it was observed that the said ITC which was carried forwarded by them in GSTR-9 for F.Y. 2019-20. In this regard, it was held that Table 8C of GSTR-9 represents the ITC appearing in GSTR-2A pertaining to the current F.Y., but to be availed in subsequent financial year as per Section 16(4) of the CGST Act. Further, column 8D referred to the difference of the aggregate value of the ITC which was available in form GSTR-2A and availed in FORM GSTR-3B returns. Upon perusal of table-8 of the GSTR-9 for the F.Y. 2019-20 it was found that the appellant had duly mentioned that they received ITC in F.Y. 2019-20 but availed in next subsequent F.Y. 2020-21. Therefore, ITC in F.Y. 2020-21 which is found to be less than the ITC carry forawarded is admissible to the appellant. In the instant case, the appellant has already deposited self-assessed tax through DRC-03 and no excess availment of ITC was observed. Further, that the appellant has deposited their due tax liability voluntarily, even though belatedly, the demand for excess availed ITC amount is not sustainable. Hence, Penalty under Section 74 levied in relation to the said demand or demand of interest is not sustainable.
Para-5: Wrong availment of total ITC in F.Y. 2017-18 to 2021-22 which is blocked credit under Section 17(5) of the CGST Act	That the impugned show cause notice and order failed to specify the exact nature of violation conducted by the appellant which renders the demand invalid. Further, reference of the relevant clause has also not been made in respect of the goods or service on which the ITC has been denied. Reliance has been placed upon the following judgments: COMMR. OF C.EX., PUNE-II versus JAMSHRI RANJITSINGHJI SPG. & WEAVING MILLS CO. LTD. [2014 (302) E.L.T. 574 (Tri. – Mumbai)]	With regard to the wrongly availed ITC in F.Y. from 2017-18 to 2021-22 which is blocked credit under Section 17(5) of the CGST Act 2017, it was observed that the said section is comprehensive and descriptive in nature, as it specifies a wide range of goods, services and combinations thereof in respect of which ITC is expressly restricted or blocked. Before confirming any demand or disallowing ITC, the proper officer must clearly identify the specific clause of Section 17(5) that is alleged to be applicable and establish the factual basis for the invoking that clause. Furthermore, upon perusal of the invoices which were produced by the appellant, it was observed that the invoices pertain to commercial vehicles and thus, input tax credit on such commercial vehicles stands to be allowed. However, those invoices were not part of the impugned show cause notice. Further, appellant failed to produce those invoices to substantiate their claim. Hence, it was held that the ITC on such invoices is not available to them and the same is covered under blocked credit under Section 17(5). Thus, the contention of the appellant was not accepted and the demand raised was upheld.
Para-6: Non-payment of interest on delayed payment of GST declared in the return furnished after the due date in accordance with the provisions of Section 39 of CGST Act	That there was delayed payment of GST in the return furnished after the due date in accordance with provisions of Section 39 of CGST Act. Appellant has furnished GSTR-3B returns after the due dates. However, the tax has already been paid and the same have been appropriated by the adjudicating authority. Along with that, Section 74 is not invokable as the tax liability has already been discharged voluntarily, even though belatedly, the demand for excess paid ITC amount is not sustainable as there is no excess availed ITC.	Section 75(12) and Section 50(3) was referred and it was observed that it is well-established judicial discipline that levy of interest under Section 50 of the Act ibid is mandatory and cannot be bypassed. Even if the tax is paid belatedly, the appellant is liable to pay interest from the due date of tax till the actual date of payment and the same is liable to be recovered from them under Section 75(12) of the CGST Act 2017. Hence, imposition of penalty under Section 74 of the CGST Act 2017 is out of the context. With regard to belated payment of tax and interest the contention of the appellant was accepted under Section 74 of the Act ibid levied in relation to the said demand is not sustainable. With regard to the penalty under Section 74, Section 74(1) was referred and it was held that demand of tax can be initiated only where is no payment of tax. Along with that, there is fraud or wilful misstatement or suppression of fact was noticed. Hence, as in the instant case the appellant had already deposited the tax along with applicable interest, penalty under Section 74 is not invokable. With regard to the excess availed ITC in GSTR-3B vis a vis GSTR-2A during the F.Y. 2018-19, 2019-20 and 2020-21 along with interest and penalty filed GSTR-1 after the due date as specified by the statute resulting into non-consideration in time frame as per CGST Act 2017. It has been contested that there is no such excess availed ITC. However, GSTR-3B was filled by supplier after due date was observed that the appellant was found excess availing of ITC in F.Y. 2018-19 as per table 8D of GSTR-9. Appellant had availed on the basis of invoice raised by their.
Para-7: Non-payment of late fee on late/Non-filing of GSTR-9 for the F.Y. 2021-22	Appellant contended that the late fees was already deposited via DRC-03 on account of delayed filing of GSTR-9 for the period 2021-22.	Since the amount stands already paid, the contention of the appellant was accepted and the para was dropped.
Para-8:Wrong availment of input tax credit during the F.Y. 2020-21 and 2021-22 without having any related documents as prescribed under Section 16 of the CGST Act 2017	That the appellant quoted price which was less than the quotation on the basis of which contract was awarded to them. However, as per the agreement, the invoice was to be raised at the base price. Hence, as the invoice was on the higher side and the agreed consideration was on the lower side, the party issued the invoice for the differential price. However, the tax was paid by the appellant on the full amount i.e. amount of invoice. Further, in view of Section 15 of the CGST Act, the price which is over and above the quoted price cannot be treated as value of supply. As the recipient moved on to issue the invoice for differential price, the appellant had no option but to claim its ITC so that ultimately the tax is paid on the transaction value (i.e. the quotation price).	With regard to this, it was observed that the appellant has provided the copy of contract with M/s Rajasthan State Beverages Corporation Limited along with invoices raised by them. Allegation upon the appellant was made that they were engaged on supplying of manpower for the work of loading/unloading entrusted to them and availed ITC on such outward supplies made. However, upon asking appellant have failed to produce documents in relation to such services appearing contravention of Section 16(2) of the CGST Act read with Rule 36(4) of the CGST Rules 2017. Further, it was observed that careful observation of the submission made by the appellant, it was observed that there were 3 works contracts awarded to the appellant. In those contracts, the appellant placed the bid which were below the base price. Hence, contract was awarded to the appellant on the price quoted and the appellant was legally eligible for the consideration which was restricted to Rs. 2.50 per case. Thereafter, in order to give effect to the actual consideration and to reconcile the difference, between the base price and the accepted bid price, issued tax invoices in respect of the differential amount and charged GST applicable thereon and collect payment which was excess paid by the appellant. The appellant also produced the notesheet duly signed by the AO as sought from recipient. to make the payment the appellant consideration was legally payable to the appellant under the contract was restricted to base price. Thereafter, after computing actual payable amount. Thus, it was found that the disputed invoices are related to the adjustment to recover the differential amount by the RSBCL. Procedural irregularities especially in the inception of new tax regime are held to be ignored when there is no apparent loss of revenue nor any apparent benefit to the appellant which is the case in the present matter
Para-9: Non-payment of GST under RCM on charges paid on account of Legal Fee, Freight paid and Royalty paid as shown in Balance sheet during the F.Y. 2017-18 to 2021-22.	Impugned order has confirmed the demand pertaining to audit para on Legal fee, Freight and royalty paid as per the FSs of the appellant during the F.Y. 2017-18 to 2021-22. Appellant contended that provision of reverse charge applies to the case of legal services given by an advocate and not on the services rendered by the chartered accountant. Further, with regards to the reverse charge on royalty contended that, contract value includes royalty amount, TDS and labour cess. These are deducted from the gross contract value which are paid by the Government department to revenue department while making of running bills and that the government department itself deducts and makes payment of royalty to safeguard revenue of royalty. Along with that, appellant had never made payment of royalty, thus, appellant are not liable to make payment of RCM on the same.	With regard to GST under RCM on the services provided by a chartered accountant, the contention of the appellant was accepted and the demand as raised by the impugned order was set aside. With regard to GST under RCM on the freight charges, it was observed that appellant failed to produce documentary evidence in their support to substantiate the fact that appellant has paid charges directly to the supplier. Therefore, the contention of the appellant is not sustained. Therefore, demand of GST is upheld.
Para-10:Non-payment of GST on sale of Capital goods/Plant and Machinery during the F.Y. 2017-18, 2018-19 and 2021-22	With regards to GST on sale of capital goods/ plant and machinery, it was observed that as the appellant had already deposited the tax along with interest via DRC-03. Hence, the contention of the appellant was accepted. However, since the payment was made by the appellant pursuant to audit conducted by the department, hence, penalty is imposable upon them. With regard to the penalty imposed under Section 74 and Section 122(2), the aforementioned sections were referred and it was observed that penalty under Section 74 (1) can be imposed only in the cases where the investigation indicates that there is material evidence of fraud or wilful misstatement or suppression of fact to evade tax. In the instant case, no material evidence was collected for justification of invoking Section 74 of the CGST Act. For this reliance was placed upon the decision of Hindustan Steel v. State of Orissa [1978 2 ELT J 159 (Supreme Court)], Commissioner of Sales Tax, in which it was held that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi-judicial in nature and penalty should not ordinarily be imposed upon the person acted deliberately in defiance of law.	Section 74(1) was referred along with Section 122(1)(b) and upon reading of the abovementioned provisions, it is clear that Section 74(1) can be invoked only in cases where there is a fraud or wilful mis-statement to evade tax on the part of the taxpayer, provisions of Section 74(1) of the CGST Act may be invoked for issuance of show cause notice and such evidence should also be made a part of the show cause notice. Further, 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]. Therefore, it was found that mere non-payment of duties or wrong availment of ITC does not necessarily indicate collusion, wilful misstatement or suppression of facts. Judgement was referred by the Hon’ble SC in the case of Northern Operating Systems Private Limited in light of which instruction no. 05/2023-GST Dated 13.12.2023 was issued by CBIC. Hence, the demand of penalty raised by the adjudicating authority stands to be set aside.

Thus, it was held that the order passed by the adjudicating authority is set aside with a direction to the adjudicating authority to initiate fresh proceedings and pass a de novo order under Section 73 instead of Section 74 in accordance with directions given under aforementioned paras.

AUTHOR’s COMMENT:

The instant judgment is highly relevant in cases arising out of audit proceedings, where Section 74 is often invoked merely because the discrepancy was detected during departmental audit. It is sometimes contended that, had the audit not been conducted, the discrepancy would have remained unnoticed. However, mere detection of a discrepancy during audit cannot, by itself, be treated as suppression, wilful misstatement or fraud. The invocation of Section 74 requires the department to specifically establish the essential ingredients prescribed under the provision and set out the basis for alleging fraud or wilful misstatement in the show cause notice. Therefore, Section 74 cannot be invoked mechanically in audit cases merely because the discrepancy was unearthed during audit. Where the ingredients of fraud or wilful misstatement are not established, the proceedings cannot be sustained under Section 74 merely on the basis of an audit objection.
Further, in the instant case, the learned Commissioner (Appeals) has partly dropped the demand and confirmed the portion of the demand. The significant aspect of the case is that, although a part of the demand was confirmed, the Commissioner (Appeals) specifically held that the ingredients of fraud, wilful misstatement and suppression of facts required for invocation of Section 74 were not established. Accordingly, in terms of Section 75(2), the surviving demand is required to be redetermined as if the demand was issued under Section 73.
This finding assumes further significance as the Tax Payer avails the benefit of the amnesty scheme introduced by the government under Section 128A for the waiver of interest and penalty for the period 1st July, 2017 to 31st March, 2020. This offers significant relief to the Taxpayer.

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PJ case study/2026-27/11

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