Audit Detection Alone Cannot Sustain Section 74 Penalty: GSTAT Bengaluru

Conduent Business Services India LLP Vs Commissioner of Central Tax (GSTAT Bengaluru)

Summary: The GST Appellate Tribunal, Bengaluru, allowed Conduent Business Services India LLP’s appeal against an order imposing penalties under Section 74 of the CGST Act on two disputed audit issues. It rejected the company’s separate objection that the Joint Commissioner (Appeals) was institutionally biased because a Commissioner had authorised the Department’s appeal.

An audit covering July 2017 to March 2020 raised demands totalling ₹19,28,456. Before the show cause notice of 25 January 2023, the company paid agreed tax of ₹7,78,693 and interest of ₹5,77,235 through Form GST DRC-03; the order also records a further interest payment. The three issues concerned excess input tax credit reflected in GSTR-3B against GSTR-2A, credit considered ineligible under Section 17(5), and transitional credit claimed through TRAN-1. The original authority dropped Section 74 penalties on the first and third issues but confirmed a penalty on the second. The company paid the reduced penalty on the second issue. On the Department’s appeal, the Joint Commissioner (Appeals) imposed Section 74 penalties on the first and third issues as well.

The Tribunal held that a Commissioner’s administrative decision to seek appellate review did not bind the statutory appellate authority on the merits. Departmental hierarchy alone did not establish a real danger of bias.