Summary: The GST Appellate Tribunal (GSTAT), Bengaluru, in I-NXT v. Sandeep Banga, Commissioner, Bengaluru Zone & Others, Appeal No. APL/16/BUR/2026, decided on 15 September 2026, set aside a penalty of ₹2,74,20,293 imposed under Section 74 of the CGST Act, holding that an input tax credit (ITC) mismatch and payment following departmental verification do not automatically establish fraud, wilful misstatement or suppression of facts. The dispute concerned differences between ITC claimed in GSTR-3B and reflected in GSTR-2A for July 2017 to November 2021. Following a departmental communication dated 28 December 2021, the taxpayer furnished information on 13 January 2022 and paid the disputed amount with interest on 18 January 2022, before issuance of the show cause notice on 28 February 2023. Nevertheless, the adjudicating authority imposed an equal penalty, subsequently upheld by the first appellate authority, primarily because the discrepancy was detected by the Department and the taxpayer had not paid the 15% penalty prescribed for pre-notice settlement under Section 74. The Tribunal distinguished Section 73, which applies to specified tax and ITC defaults not involving fraud or suppression, from Section 74, which requires evidence establishing the relevant statutory ingredients. It observed that neither authority had demonstrated any factual connection between the ITC mismatch and deliberate suppression, while the genuineness of the transactions and suppliers remained undisputed. Referring to Sections 73(5) and 73(6), GSTAT explained that the law recognises payment based on ascertainment by the proper officer and, subject to statutory conditions, restricts issuance of a notice for amounts already paid. It further held that failure to pay the reduced 15% penalty could not independently justify invoking Section 74. Relying on the Supreme Court’s decision in Tata Steel Limited, the Tribunal reiterated that allegations of fraud or suppression must rest on foundational facts rather than mere statutory expressions. Accordingly, the appellate order was set aside and the ₹2.74 crore penalty was held invalid and unjustified. The ruling does not invalidate every ITC mismatch, direct refund of tax and interest already paid, or decide the separate question of interest on unutilised credit.
An ITC Mismatch Is Not Proof of Suppression: GSTAT Bengaluru Quashes ₹2.74 Crore Penalty
Payment after departmental verification does not, by itself, turn a Section 73 case into a Section 74 case
I-NXT v. Sandeep Banga, Commissioner, Bengaluru Zone & Others
GSTAT, Bengaluru | Appeal No. APL/16/BUR/2026
Order dated 15 September 2026 | 2026 TAXSCAN (GSTAT) 168
Bench: Sudha Koka, Member (Technical), and Srikanth Venkatraman, Member (Judicial)
- Introduction: ITC Mismatch Does Not Automatically Establish Suppression
- 1. The Payment Came Before the Notice
- 2. The First Question Was Whether Section 74 Applied at All
- 3. Payment After an Officer’s Communication Is Recognised by the Statute
- 4. Non-Payment of 15% Penalty Cannot Establish Suppression
- 5. The Notice Must Contain Facts—Not Just Statutory Expressions
- 6. What the Decision Does—and Does Not—Protect
- 7. How Taxpayers Should Use This Ruling
Introduction: ITC Mismatch Does Not Automatically Establish Suppression
An officer points out an ITC mismatch. The taxpayer examines the figures, accepts the discrepancy and pays the amount with interest. A notice follows, alleging suppression and proposing an equal penalty.
The department’s reasoning is often straightforward: the taxpayer paid only after detection; therefore, the earlier claim must have involved suppression.
In I-NXT, GSTAT Bengaluru rejected that reasoning. Detection by the department explains how a discrepancy came to light. It does not, without supporting facts, establish that the taxpayer committed fraud or deliberately suppressed information. The Tribunal accordingly set aside the Section 74 penalty of ₹2,74,20,293.
1. The Payment Came Before the Notice
The dispute concerned a difference between ITC claimed in GSTR-3B and credit reflected in GSTR-2A for July 2017 to November 2021.
The sequence of events is worth noting:
| Event | Date |
|---|---|
| Anti-evasion wing sought inward-supply information | 28 December 2021 |
| Taxpayer furnished details | 13 January 2022 |
| Taxpayer admitted the lapse and paid the disputed amount with interest | 18 January 2022 |
| Investigation registered under the recorded offence reference | 21 January 2022 |
| Show cause notice issued under Section 74 | 28 February 2023 |
The taxpayer’s payment therefore followed a departmental communication, but preceded both the recorded investigation reference and the show cause notice.
The adjudicating authority nevertheless imposed an equal penalty. The first appellate authority upheld it, reasoning that the excess credit had been identified by the department and that the taxpayer had not paid the 15% penalty applicable to pre-notice settlement under Section 74.
2. The First Question Was Whether Section 74 Applied at All
The Tribunal drew the distinction between the two provisions.
Section 73 deals with the specified tax or ITC defaults arising for reasons other than fraud, wilful misstatement or suppression. Section 74 requires the default to arise from the conduct specified in that provision. An ITC discrepancy establishes neither category automatically.
The department therefore had to answer a question beyond the reconciliation:
What material connected this taxpayer’s excess ITC claim with the alleged suppression?
GSTAT found that neither the adjudicating authority nor the appellate authority had established that connection. The genuineness of the transactions or suppliers had not been disputed. The Tribunal also found that the supplier-side default could not be attributed to the recipient to sustain the suppression charge in the circumstances before it.
The size of the disputed credit did not fill this evidentiary gap.
3. Payment After an Officer’s Communication Is Recognised by the Statute
One of the most useful parts of the decision concerns Section 73(5).
The Tribunal noted that the provision recognises payment based either on the taxpayer’s own ascertainment or on tax ascertained by the proper officer. Payment need not precede every departmental enquiry to come within that framework. An officer may identify an omission during verification; the taxpayer may accept that ascertainment and pay the amount with interest.
The department’s argument—that payment after detection necessarily warranted Section 74—failed to account for this statutory language.
Subject to the conditions of Section 73 being satisfied, the Tribunal held that Section 73(6) prevents service of a notice in respect of the amount covered by the payment. In this case, the payment following verification belonged to the Section 73 framework because the necessary basis for Section 74 had not been established.
This is not a rule that every pre-notice payment closes every GST proceeding. The provision under which the case properly falls must first be identified.
4. Non-Payment of 15% Penalty Cannot Establish Suppression
The authorities relied on the taxpayer’s failure to pay 15% penalty along with tax and interest.
But that reasoning starts too late. Before asking whether the taxpayer complied with the settlement conditions under Section 74, the department must establish why Section 74 governs the case.
Failure to pay the reduced penalty cannot itself supply the missing evidence of fraud or suppression. In I-NXT, GSTAT held the Section 74 penalty invalid because the foundational connection between the mismatch and the alleged wrongdoing had not been established.
The distinction is between the conditions for settling a valid Section 74 case and the conditions necessary to invoke Section 74 in the first place.
5. The Notice Must Contain Facts—Not Just Statutory Expressions
The Tribunal relied on the Supreme Court’s Tata Steel Limited decision, as reproduced in its order, for the requirement that the notice disclose the foundational facts supporting the inference of fraud, wilful misstatement or suppression.
Merely repeating those expressions does not demonstrate application of mind. The officer must explain how the alleged conduct led to the mismatch or short payment.
This gives practitioners a precise way to examine a notice:
- Does it identify the information allegedly withheld?
- Does it explain the taxpayer’s role in the supplier-side discrepancy?
- Does it connect the evidence with the allegation of suppression?
- Or does it move directly from “mismatch detected” to “Section 74 attracted”?
The Tribunal’s reasoning requires that missing connection to be addressed, not presumed.
6. What the Decision Does—and Does Not—Protect
The ruling protects against an unsupported penalty. It does not declare that every GSTR-2A mismatch is harmless or that a taxpayer may retain credit regardless of the applicable eligibility conditions.
Nor did GSTAT order repayment of the disputed credit amount and interest. Its operative conclusion set aside the appellate order and held the Section 74 penalty invalid and unjustified.
The proprietrix had stated that the excess ITC was not utilised. However, the Tribunal did not decide a separate claim concerning interest on unutilised credit. The decision should not be cited as resolving that question.
Likewise, the disputed period ended in November 2021. Its findings should not be presented as a complete ruling on the ITC conditions applicable to every later period.
7. How Taxpayers Should Use This Ruling
A reply to a Section 74 notice should separate the admitted accounting or ITC discrepancy from the disputed allegation of suppression.
For a comparable case, the useful record would include the departmental communication, invoice-wise reconciliation, response furnished, payment particulars, interest working and the dates showing when each step occurred. The reply should then identify the absence of material connecting the discrepancy with the conduct alleged under Section 74. That distinction drove the result in I-NXT.
The judgment’s importance lies in a simple point: accepting a tax discrepancy is not the same as admitting fraud. A taxpayer who pays after verification does not, for that reason alone, lose the right to contest an equal penalty. The department must still establish the legal and factual basis for imposing it.
