Bengal Spare Parts Supply Vs M Rahaman (GSTAT Kolkata)
Summary : The Goods and Services Tax Appellate Tribunal (GSTAT), Kolkata Bench, held that proceedings under Section 74 of the CGST Act, 2017 cannot be sustained merely because discrepancies in tax payments were discovered during a departmental audit or because the taxpayer had not voluntarily discharged the disputed liability before the audit. In Bengal Spare Parts Supply Vs M Rahaman, Commissioner of CGST & CX & Ors., the Tribunal examined whether the department had established fraud, wilful misstatement or suppression of facts sufficient to justify invoking Section 74 for financial years 2017-18, 2018-19 and 2019-20. The dispute originated from an audit covering short-payment of GST on supplies reflected in the Profit and Loss Account but not declared in GST returns, transitional credit, non-reversal of input tax credit on supplier discounts and debit-note-related discrepancies. The tax amounts identified for the three financial years were ₹15,84,092, ₹2,47,874 and ₹2,57,550, respectively. The taxpayer had already paid ₹19,14,473 before issuance of the show-cause notice, leaving ₹32,512 of SGST unpaid, which was subsequently admitted.
The first appellate authority had granted relief from interest and penalty for FY 2017-18 after finding that the ingredients necessary for invoking Section 74 had not been established. However, it maintained the adverse treatment for FYs 2018-19 and 2019-20 on the ground that the taxpayer’s GSTR-9C and Profit and Loss Account were not available with the department before the audit. The taxpayer challenged this distinction, contending that GSTR-9C and the accompanying financial statements were not required to be furnished because of the exemption applicable on the basis of annual aggregate turnover. The department did not specifically dispute this explanation in its cross-objection but argued that the taxpayer’s payment of the audit demands without contesting the discrepancies indicated prior knowledge of the liability and failure to disclose it voluntarily.
The Tribunal relied on the Supreme Court’s decision in Tata Steel Limited Vs Union of India, dated 25 August 2026, which emphasised that proceedings under Section 74 require the proper officer’s satisfaction, supported by foundational facts, that fraud, wilful misrepresentation or suppression caused the tax discrepancy. Merely reproducing statutory expressions in a show-cause notice does not establish the necessary application of mind. Applying this principle, the Tribunal observed that the discrepancies had been detected entirely from documents prepared and produced by the taxpayer. The department had not discovered incriminating records or other evidence demonstrating deliberate concealment. It further held that failure to pay tax voluntarily before audit did not necessarily amount to wilful suppression, particularly considering the initial statutory and infrastructural difficulties following GST implementation and subsequent pandemic-related extensions. The Tribunal also referred to CBIC Instruction No. 5/2023-GST, requiring definite evidentiary support for invoking Section 74.
Consequently, the Tribunal quashed the Section 74 proceedings arising from Show Cause Notice No. 202/23-24 and held that the reasoning adopted by the first appellate authority for FY 2017-18 applied equally to FYs 2018-19 and 2019-20. It held that the Revenue was barred from taking further action for FY 2017-18 because of limitation and set aside the first appellate order concerning the remaining two years. The matter was remanded to the proper officer for fresh determination of tax liability under Section 75(2), treating the notice as one issued under Section 73(1). The officer was directed to provide adequate opportunity of hearing and preferably complete the exercise within three months from communication of the order. The Tribunal also permitted the taxpayer to approach the concerned officer for relief under Section 128A, directing that any such application be considered expeditiously in accordance with law. The decision reinforces that audit-detected discrepancies and delayed voluntary payment cannot, without supporting evidence of deliberate wrongdoing, justify the more stringent proceedings under Section 74.
Cases Discussed
- Tata Steel Limited Vs Union of India (Supreme Court of India); decided on 25/08/2026.
FULL TEXT OF THE ORDER OF GSTAT KOLKATA
[1] The Appellant has preferred this appeal before the GSTAT, Kolkata Branch against the impugned Order-in-Appeal No. 198/HWH/GST/JC/25-26 dated 04.11.2025 with reference no. ZD191125010496I dt. 07.11.2025 passed by the Joint Commissioner, CGST & CX, Kolkata Appeals-II Commissionerate arising out of Order-in-Original 73/GST/Audit/Supdt/RangeV/Singur/24-25 dt. 19.08.24 passed by Superintendent of CGST & CX, Range-V, Singur Division, Howrah Commissionerate.
[2] The Appellant supplies goods of “Hardened Protein” and goods of “Cellulosic Materials”. The instant proceedings have been originated during the course of audit of statutory records and documents maintained by M/s BENGAL SPARE PARTS SUPPLY holding GSTIN: 19AHDPD7625C1ZN by a team of officers of GST Audit, Audit – II Commissionerate, Kolkata by way of issuance of Show Cause Notice No. 202/23-24 dt. 14.12.2023 for the F.Y. 2017-18, 2018-19 and 2019-20 under Section 74 (1) of CGST Act, 2017 raising objections like short-payment of tax on supplies detected in Profit and Loss Account but not declared in GSTR-3B or GSTR-9, eligibility of Tran-I credit availed by them, non-reversal of ITC on discount received from suppliers, non-reversal of ITC on debit note issued by the appellant to certain supplier etc.
[3] It appears from the documents available that the short payments under CGST and SGST taken together is as below:
For 2017-18: Rs. 15,84,092/-
For 2018-19: Rs. 2,47,874/-
For 2019-20: Rs. 2,57,550/-
[4] The entire demand was confirmed along with applicable interest and a penalty equivalent to tax confirmed vide Order-in-Original dt. 19.08.2024 issued by Superintendent, Range-V, Singur Division, CGST & CX, Howrah Commissionerate except for the issue on non-reversal of GST on discount received amounting to Rs. 1,42,530/- . The applicant had paid Rs. 19,14,473/-before issuance of Show Cause Notice, the only unpaid tax amount got reduced to Rs. 32,512/- (SGST).
[5] Aggrieved by the Order-in-Original, the appellant filed an appeal with the appellate authority (Joint Commissioner) after admitting the amount of Rs. 32,512/- (SGST) and only disputing that there is no ground to invoke the provisions of Sec. 74 and hence they prayed that:
a) the impugned adjudication be modified immediately by setting aside the invocation of Sec. 74 and decide the case under Sec. 73; or
b) remanding the order to the adjudicating authority with the direction to decide the case afresh under Sec. 73 of the Act ibid in view of the provision of Sec. 75(2) of the Act as the invocation of Sec. 74 is not established, so as to allow the appellant to avail the benefit of waiver of interest and penalty as provided under new Sec. 128A of the CGST Act, 2017 within the given time frame as the entire tax liability as demanded and confirmed has already been paid.
[6] The Appellate Authority vide the impugned Order-in-Appeal dropped the demand of interest and penalty for F.Y. 2017-18 observing that the Adjudicating Authority failed to establish the presence of ingredient requisite for invocation of Section 74 of CGST Act, 2017. Notwithstanding the above fact, the Appellate Authority explicitly held in Para 18 of the said Order-in-Appeal that the appellant uploaded the Profit and Loss Account/Trading Account only for the F.Y. 2017-18 and prior to Audit, those records for F.Y. 2018-19 and 2019-20 was not available with the department. It was also observed in the same Para that the discrepancies were not disclosed voluntarily by the Appellant but were detected by the department during the course of Audit.
Grounds of Appeal:
[7] The appellant has now challenged the impugned order-in-appeal upholding interest and penalty for F.Y. 208-19 and 2019-20 under Section 74 of CGST Act for being erroneous merely on the ground that part of the demand for F.Y. 2017-18 was decided under Section 73 of the said Act allowing relief to the appellant.
From the Grounds of Appeal, it appears that the only purpose of the appellant for the instant appeal is causing the case to be determined under Section 73 of the said Act to avoid the interest and penalty by way of availing benefit under Section 128A of the said Act.
Discussion:
[8] In M/s Tata Steel Limited vs Union of India delivered on 25.08.2026 the Hon’ble Supreme Court has held as under:
“11. At the outset we have to notice that the proceedings under Section 73/74 can be initiated only on the satisfaction of the Assessing Officer. Even if observations /objections are made on audit, the Assessing Officer should enter his satisfaction before a notice is issued. Insofar as a notice under Section 74, the satisfaction should be not only of mismatch of ITC and short payment of tax having occurred, as is alleged in this case, the Officer should be satisfied that either fraud/wilful misrepresentation/ suppression had led to such mismatch or short payment of tax.
14. It is not mere lip service to the provisions that is intended when an extended limitation period is provided for recovering an excess benefit availed, short payment or excess refund, from the assessee, especially when the allegation is of fraud/willful misrepresentation/suppression. The foundational facts which led to the inference arrived at of fraud/willful misrepresentation/ suppression should be evident from the notice itself. The mere employment of such words will not indicate an application of mind, upon which alone the satisfaction can be arrived at. The words are not to be mechanically recited in the notice to enable recovery outside the normal limitation provided under the statute.”
[9] In the instant case, the first appellate authority has decided that for 2017-18 as GSTR 9C and P/L accounts had been uploaded by the taxpayer there is no element of suppression and section 74 is not applicable for such FY, whereas as the GSTR 9C and the P/L account is not available with the department for 2018-19 and 2019-20 Section 74 is applicable for these two years.
[10] The appellant contradicts such observation stating that they did not file GSTR-9C along with Profit and Loss Account as per Rule 80 of CGST rules due to an exemption on the basis of their Annual Aggregate Turnover. In this respect the respondent has not made any objection in the cross-objection filed by them. They have only stated that Appellant had never denied any of the objections raised by the Audit team, rather paid all the demand without any defence which further implies that the Appellant did not voluntarily discharge their due tax liability in GST returns even after having complete knowledge of their liability.
[11] The discrepancy as detected by the respondent is solely based on the documents prepared and produced by the taxpayer. No incriminating documents or reports have been detected by the respondent so that it can be inferred that the taxpayer wilfully undisclosed the alleged discrepancy.
[12] In the cross-objection the respondent has pointed out that since Audit was conducted during 2023, after six (06) years from the implementation of GST Act, the Appellant had ample opportunity to reassess their liability and discharge their liability voluntarily during those six (06) years and therefore the plea of unintentional error caused during the initial periods of introduction of GST. But it is apparent that initial statutory as well as infrastructural issues followed by pandemic led to extension of time both in favour of the taxpayers as well as the department for completion of due actions. Hence, not discharging of liability suo motu before departmental audit not necessarily mean wilful suppression. Action under section 74 should require definite evidential support and it should be part of the SCN, vide instruction no. 5/2023-GST issued by CBIC.
[13] The ratio of the decision of the first appellate authority for consideration of the case under section 73 instead of section 74 therefore holds equally good for 2018-19 and 2019-20 as pointed out in para no. 10 above.
[14] In view of above discussion, it is held that proceeding under section 74 of the CGST Act, pertaining to SCN No. 202/2023-24 is not tenable.
[15] Resultantly, the action under Section 74 of CGST Act, 2017 is quashed. The revenue is precluded from taking action for FY- 2017-18, as it has been time barred. The order of the First Appellate Authority in respect of FY 2018-19 and 2019-20 is set aside. Since we have decided that action under Section 74 of CGST Act, 2017 is not sustainable, the matter is remanded back to the proper officer to determine the tax payable by the appellant-taxpayer afresh in terms of Section 75(2) of CGST Act, 2017, deeming as if the notice was issued under sub-section (1) of Section 73 of the CGST Act, 2017. The proper officer shall complete the whole exercise after issuing notice to the appellant-taxpayer and providing him adequate opportunity of hearing preferably within a period of three months from the date of communication of this order. The appellant-taxpayer may also approach the concerned officer for the benefit under Section 128A of the CGST Act, 2017 and if such application is filed, the revenue will consider the application as expeditiously as possible in terms of the law laid down in this regard. The appeal is, thus, disposed off.
