GSTAT First Judgment: Jurisdiction of the GSTAT is different from the Jurisdiction of the High Court u/s Section 100 of CPC; GSTAT has power to examine question of facts also

GSTAT First Judgment: Jurisdiction of the GSTAT is different from the Jurisdiction of the High Court u/s Section 100 of CPC; GSTAT has power to examine question of facts also

Facts of the Case

• The Appellant, Sterling and Wilson Pvt. Ltd., engaged in EPC services and registered under GST, challenged the First Appellate Order dated 06.09.2022, which arose from an adjudication order dated 26.04.2021 for the tax period 01.04.2018 to 31.03.2019 (FY 2018–19).
• The original order raised a demand of CGST and SGST totaling ₹27,06,634/-, with interest of ₹11,04,582/- and penalty of ₹27,06,634/-, aggregating to ₹65,17,849/-, on the ground that the Appellant disclosed lesser tax liability in GSTR-3B compared to GSTR-1.
• For FY 2018–19, output tax liability declared in GSTR-1 was ₹31,36,18,763/-, while in GSTR-3B it was ₹31,09,12,131/-, resulting in an alleged shortfall of ₹27,06,634/-.
• The First Appellate Authority, after examining the records, determined tax demand of ₹27,06,634/-, interest of ₹15,84,248/-, and reduced penalty to ₹2,70,664/-, totaling ₹45,61,546/-. After adjusting payment already made, the balance demand was ₹42,90,882/-.
• The Appellate Authority found no intent to evade tax but held that the Appellant could not prove that ITC passed to recipients was not utilised, and treated the case under Section 73(9), modifying the penalty accordingly.
• The Appellant filed the present Second Appeal before the Tribunal, challenging the findings and the upholding of tax and interest liability.

Contentions of the Parties

Appellant

• Demand of tax and interest is erroneous in law and facts.
• Tax liability was upheld merely on account of return mismatch without verifying reconciliation records.
• Absence of intent to evade tax was admitted; thus, proceedings under Section 74 ought to have been dropped.
• Levy of interest and penalty is unsustainable as the issue is reconciliatory and revenue neutral.
• Discrepancy arose due to issuance of credit notes and adjustment of advances for different tax periods, which could not be amended in GSTR-1 due to system constraints; all adjustments were reflected in books and GSTR-3B.
• Proper Officer did not accept explanations, citing late issuance of credit notes, lack of proof of ITC reversal, and incomplete reconciliation.
• Detailed reconciliation and supporting documents were submitted but not considered by the Appellate Authority.

Respondent (Revenue)

• Appellant failed to reconcile mismatch between GSTR-1 and GSTR-3B as prescribed under the Act.
• Explanations regarding credit notes, advances, and prior-period adjustments were not supported by contemporaneous compliance and were raised belatedly.
• Burden of proof to justify discrepancy was not discharged by the Appellant.
• First Appellate Authority rightly upheld tax and interest while modifying penalty; impugned order is legally sound.
• Appellate Authority examined reconciliation statements and updated return data; multiple discrepancies were found, including non-amendment of GSTR-1, non-reconciliation in GSTR-9/9C, late credit notes, failure to establish ITC reversal, and prior period claims.
• Relied on Supreme Court judgments for strict interpretation of tax statutes and bar on raising new issues at appellate stage.

Issues

• Whether the proceedings for demand of tax, interest, and penalty based on mismatch between GSTR-1 and GSTR-3B, in the absence of fraudulent intent or suppression, can be sustained under Section 74 of the CGST/SGST Act, 2017.
• Whether the Appellate Authority and Tribunal have jurisdiction to re-determine tax liability under Section 73 when Section 74 is found inapplicable.
• Whether the Appellant should be permitted to amend returns and provide further reconciliation in light of system constraints and procedural lapses during the relevant period.

Decision

A. Jurisdiction of the Tribunal and Scope of Second Appeal under Section 112 of CGST Act

• The Tribunal examined the distinction between the jurisdiction of the High Court under Section 100 of the Code of Civil Procedure, 1908, and the Tribunal under Section 112 of the CGST Act, 2017, noting that the limitations of Section 100 (substantial question of law) do not apply to GST second appeals before the Tribunal. The Tribunal is the last adjudicating forum on questions of fact as well as law. (p15–21)
• The argument by Revenue that the Tribunal cannot go into questions of fact is rejected; the Tribunal has power to examine questions of fact under Section 112 read with Rule 112. (p21)

B. Interpretation of Tax Statutes and Applicability of Supreme Court Precedents

• The Tribunal considered the Supreme Court judgment in Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company Ors regarding strict interpretation of exemption notifications, but held that the present case does not involve interpretation of an exemption notification, but rather whether there was actual short payment of tax. The precedent is not directly relevant. (p22)

C. Findings of the First Appellate Authority and Nature of the Discrepancy

• The First Appellate Authority accepted that there was no fraudulent intent or suppression by the Appellant, as transactions were disclosed in debit/credit notes and accounted for in books, but not reflected in periodical returns matching the annual return. (p23–24)
• The only fault found was non-reflection of debit/credit notes in periodical returns and failure to prove that ITC passed to recipients was not utilised. (p25)
• The Tribunal opined that this aspect should be re-examined by the Proper Officer, and the Appellant should be given an opportunity to amend returns, condoning delay. (p25)
• The Tribunal rejected the argument that the consequences for other litigations should affect the decision in the present case, emphasizing that each case must be decided on its own facts and merits. (p25)

D. Applicability of Section 34(2) and Timelines for Credit Notes

• The First Appellate Authority held that credit notes not issued within the prescribed time under Section 34(2) cannot be considered for determining short payment of tax. (p26)

E. Principles of Natural Justice and Opportunity to Amend Returns

• The Tribunal emphasized that honest taxpayers should be protected, and in the absence of intent to evade tax, a pragmatic approach should be adopted, especially considering the difficulties during the Covid-19 pandemic and the manual nature of return filing at the relevant time. (p27)
• The Tribunal noted that the Appellant was not heard in-person at the time of the original order. (p32)

F. Power to Re-determine Tax Liability under Section 73 after Section 74 Proceedings Found Unsustainable

• The Tribunal examined Section 75(2) of the CGST Act and CBIC Circular No. 254/11/2025-GST, which clarify that when proceedings under Section 74 are found unsustainable for lack of fraud/suppression, the Proper Officer (not the Appellate Authority or Tribunal) must re-determine tax liability under Section 73. (p28–30)
• Accordingly, the Tribunal held that the First Appellate Authority and Tribunal cannot themselves re-determine tax liability under Section 73; the matter must be remanded to the Proper Officer. (p30–31)

G. Remand and Directions for Fresh Consideration

• The Tribunal set aside the orders of the Proper Officer and First Appellate Authority, insofar as they treat the case under Section 73, and remanded the matter to the Proper Officer for fresh consideration under Section 73. (p33–34)
• The Appellant is granted liberty to file an amendment petition within one month from the date of the order, and the Proper Officer is directed to afford a reasonable opportunity of hearing, allow production of documents, and consider the matter on merits. (p34–35)
• The Proper Officer is to examine the genuineness of credit/debit notes and other documents and render a final order under Section 73. (p35)

H. No Order as to Costs and Appreciation

• No order as to costs is made. The Tribunal records appreciation for the efforts of all parties and staff in conducting virtual, paperless hearings. (p36–37)

Conclusion

The Tribunal concluded that, in the absence of any finding of fraud, suppression, or intent to evade tax, the proceedings under Section 74 of the CGST/SGST Act are not maintainable. The matter must be considered under Section 73, and only the Proper Officer is empowered to re-determine tax liability in such circumstances. The orders of the Proper Officer and First Appellate Authority, insofar as they treat the case under Section 73, are set aside, and the matter is remanded to the Proper Officer for fresh determination, granting the Appellant an opportunity to amend returns and be heard on merits.

Disposition

The appeal is allowed to the extent indicated; the orders of the Proper Officer and First Appellate Authority, insofar as they treat the case under Section 73, are set aside. The matter is remanded to the Proper Officer for fresh consideration under Section 73 of the CGST Act, with liberty to the Appellant to file an amendment petition within one month and to be afforded a reasonable opportunity of hearing. No order as to costs.

Source: Sterling and Wilson Pvt. Ltd. v. Commissioner Odisha Commissionerate of CT GST and Ors., (2026) taxcode.in 28 GSTAT