GST UPDATE

Hon’ble Authority: GSTAT, Thiruvananthapuram
Case Title: Chelco Bind Grips v. Commissioner of CGST & CE, Thiruvananthapuram.
Appeal No. & Citation: Appeal No: APL//46/TVP/2026

Hon’ble Judge(s)	Hon’ble Shri Subramanya Rayaprol, Vice President & Hon’ble Shri Ramamoorthi Sriram, Member (Technical)
Date of Order	8 October 2026
Outcome	Appeal allowed

Brief Facts of the Case

M/s Chelco Bind Grips was issued a Show Cause Notice pursuant to an audit conducted under Section 65 of the CGST Act proposing disallowance of Input Tax Credit (ITC) on the allegation that the invoices against which ITC had been availed were not reflected in the recipient's GSTR-2A. The adjudicating authority confired part of the demand along with Interest under Section 50(3) and penalty under Section 74(1). The appellant challenged the adjudication order. The appellate authority upheld the tax demand and the applicable interest. However, it recorded a finding that there was no evidence of fraud, wilful misstatement, collusion or suppression on the part of the appellant and, consequently, that the penalty under Section 74 and therefore imposed a modified penalty under Section 73(9) of the CGST Act. Aggrieved by such order, the appellant approached the GST Appellate Tribunal, Thiruvananthapuram.

Question before Hon’ble Authority

Can an appellate authority impose a penalty under Section 73(9) when the Show Cause Notice proposed penalty under Section 74(1)?

Brief Arguments by Appellant

Impugned Order is Self- Contradictory

Having found no fraud, wilful misstatement, collusion or suppression the Joint Commissioner (Appeals) modified only the penalty to Section 73(9) but left the Section 74(1) tax determination undisturbed. The appellant submitted that once the ingredients necessary for invoking Section 74 were found to be absent, the demand could not legally continue under the same provision.

Penalty under Section 73(9) could not be imposed without a determination under Section 73

The appellant further contended that the penalty imposed under Section 73(9) had no independent legal foundation because the proceedings had been initiated under Section 74(1). A penalty under Section 73(9) can follow only a determination under Section 73(1), which no authority made. The Show Cause Notice had proposed a penalty under Section 74(1), and no charge had been framed against the appellant under Section 73(9).

The appellate authority travelled beyond the scope of the Show Cause Notice

The appellate authority could not introduce a new statutory charge at the appellate stage and impose a penalty under a provision that had not been invoked in the notice.

Brief Arguments by Respondent

The demand was within the limitation period prescribed under Section 73

In the present case, the Show Cause Notice had been issued before the last dates for issuance of a Show Cause Notice and an Order-in-Original under Section 73 of the CGST Act. Accordingly, both proceedings had been initiated and concluded within the prescribed time limits applicable under Section 73(10) of the CGST Act.

No prejudice was caused to the appellant by the modification of the penalty

It submitted that the appellate authority had already granted relief to the appellant by reducing the penalty and imposing it under Section 73(9), instead of maintaining the penalty under Section 74(1). Therefore, the modification was beneficial to the appellant and no prejudice had been caused.

Findings and Judgement

Appellate Order clearly held that Section 74 is not applicable

The Tribunal found that the appellate authority had recorded a clear and reasoned finding that there was no evidence to establish fraud, wilful misstatement, collusion or suppression on the part of the appellant. It had also acknowledged that the appellant could not control the conduct of the supplier and could not necessarily know whether the supplier had remitted the tax collected. Further, the said finding was not challenged by the Revenue.

The tax demand under Section 74 was contradictory to its own findings

Once the appellate authority had found that the circumstances necessary for invoking Section 74 were not established, it could not simultaneously sustain the demand under that very provision. The Tribunal considered this to be a direct contradiction within the impugned order and characterised it as a classic case of non-application of mind.

The appellate authority could not suo motu impose a penalty under Section 73(9)

The Tribunal held that the appellate authority's action was outside the scope of the charges set out in the Show Cause Notice. Since the appellant had never been called upon to show cause why a penalty should not be imposed under Section 73(9), the penalty imposed under that provision was legally unsustainable. The Tribunal thus emphasised that an appellate authority cannot pass order under different penal provision that was never invoked in the Show Cause Notice. The Revenue could not defend the action merely by arguing that the penalty imposed under Section 73(9) was lower than the penalty proposed under Section 74(1).

The Revenue could not justify the demand on the basis of the limitation period under Section 73

The Tribunal observed that the Revenue could not, at the second appellate stage, seek to sustain the demand under Section 73(9) when the Show Cause Notice had invoked Section 74 and the finding against the applicability of Section 74 had not been challenged. It rejected the contention of the department holding that the question was not whether the demand could hypothetically have been raised under Section 73 is not important.

Accordingly, the Tribunal allowed the appeal and set aside the impugned Order-in-Appeal.

Author’s Comment

Sterling & Wilson Pvt. Ltd. v. Commissioner, Odisha, CT & GST (GSTAT Principal Bench, APL/1/PB/2026, 11.02.2026)

“original Proper Officer who has issued Notice Under Section 74(1) of the CGST Act shall re- determine the tax payable by the Assessee and it cannot be done by the First Appellate Authority or the Tribunal. ... the matter has to be remitted back to the learned Proper Officer for re-determining the tax to be paid along with penalty, interest, etc.".

Comments

GST update /2026-27/0096