Chelco Bind Grips Vs Commissioner of CGST & CE (GSTAT Thiruvananthapuram)
Summary: The Goods and Services Tax Appellate Tribunal, Thiruvananthapuram, in Chelco Bind Grips Vs Commissioner of CGST & CE, Thiruvananthapuram, examined the legality of sustaining a demand for input tax credit under Section 74 of the CGST Act while imposing a reduced penalty under Section 73(9). The appellant, a proprietary concern manufacturing screws, bolts, nuts, washers and similar iron and steel articles, had claimed input tax credit of Rs. 10,16,167 for financial year 2018-19 on invoices not reflected in GSTR-2A. Following an audit under Section 65, the department issued a show cause notice under Section 74. The adjudicating authority subsequently dropped a demand of Rs. 6,19,872 relating to invoices that had appeared in the records but confirmed the remaining demand of Rs. 3,96,295 along with interest under Section 50(3) and penalty.
The first appellate authority upheld the tax demand and interest under Section 74 but concluded that the appellant could not have known whether its supplier had deposited the collected tax with the Government. It specifically found no evidence of fraud, wilful misstatement, collusion or suppression of facts by the appellant. Nevertheless, instead of setting aside the penalty entirely, the appellate authority substituted a penalty of Rs. 49,534 under Section 73(9), comprising Rs. 39,534 under the CGST Act and Rs. 10,000 under the KGST Act. The appellant challenged this contradictory approach, contending that a penalty under Section 73(9) could not be imposed without a corresponding determination under Section 73(1), particularly when the original show cause notice had invoked Section 74 alone.
The Revenue argued that the original notice and adjudication order had been issued within the limitation period applicable to Section 73 and that the appellant had suffered no prejudice because the substituted penalty was lower. The Tribunal rejected this submission. It observed that the appellate authority’s finding regarding the non-applicability of Section 74 had not been challenged by the Revenue through an appeal or cross-objections. Once the appellate authority concluded that Section 74 was inapplicable, its decision to uphold the tax demand under that very provision was inconsistent with its own findings and reflected non-application of mind.
The Tribunal further held that the appellate authority could not independently impose a penalty under Section 73(9) when the show cause notice had proposed a penalty only under Section 74(1). The fact that the proceedings might hypothetically have been within the limitation period under Section 73 did not cure the absence of a corresponding charge in the notice. The Tribunal concluded that the appellate order had travelled beyond the scope of the show cause notice. Accordingly, it allowed the appeal, set aside the order-in-appeal with consequential relief, and found it unnecessary to examine the remaining grounds. The decision emphasises the distinction between proceedings under Sections 73 and 74 and the requirement that tax demands and penalties remain within the statutory foundation of the original notice.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
The present appeals are directed against the Order-in-Appeal (OIA) No. TVM – GST -000- APP- 270-2023-JC dated 6/10/2023 issued on 14/10/2023 passed by the Joint Commissioner (Appeals), CGST, Cochin.
1.0 Brief Facts of the Case
The Appellant, M/s Chelco Bind Grips, a proprietary concern of its Proprietrix Kavitha Kumari Raveendran, is registered under CGST / KGST Act with GSTIN 32BVRPR7034J1Z3. The Appellant is engaged in manufacture and sale of screws, bolts, nuts, washers and similar articles of iron and steel (HSN 7318).
1.1 Pursuant to audit under Section 65 of the CGST Act, Show Cause Notice (SCN) No. 39/2021-22/GST/SUPDT dated 13.12.2021CN was issued proposing disallowance of Input Tax Credit (“ITC”) of Rs.10,16,167/- for the Financial Year 2018-191 on the ground that the invoices in respect of which ITC was claimed were not reflected in GSTR-2A. Superintendent of Central Tax and Central Excise, Karunagappally Range passed OIO No. 02/2022-23/GST dated 30.12.2022 under Section 74 of the CGST Act confirming a demand of Rs.3,96,295/- after dropping demands of Rs.6,19,872/- in respect of invoices that had by then been reflected.
1.2 Joint Commissioner (Appeals), CGST, Kochi, vide impugned OIA imposed a modified penalty of Rs.49,534/- under Section 73(9) of the CGST Act (Rs.39,534) and Section 73(9) of the KGST Act (Rs.10,000). The tax demand of Rs.3,96,295/-under section 74 of the CGST Act and interest under Section 50(3) were upheld in full.
1.3 Aggrieved by the said OIA, the appellant has filed this appeal before the Tribunal.
2. Submissions of the Appellant
M. Unnikrishnan, Ld CA, learned counsel for the appellant made extensive submissions on preliminary and jurisdictional grounds and also on merits. Among these he strongly urged the following fundamental jurisdictional grounds, which we find are required to be addressed upfront, before delving into the other contentions:
2.1 Impugned order is self-contradictory in so far as it imposes penalty under Section 73(9) upon a tax demand that continues to stand under Section 74(1). 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.
2.2 A penalty under Section 73(9) can follow only a determination under Section 73(1), which no authority made. A Section 73(9) penalty riding on a subsisting Section 74(1) demand has no foundation in law. For this reason, the penalty imposed by the Impugned Order is liable to be set aside.
3. Submissions of the Respondent /AR on the above jurisdictional issue.
Suresh, S, Ld AR appeared for the Respondent/ Revenue (Centre) and put forth the following submissions:
3.1 The last date for issuance of Show Cause Notice and Order in Original under Section 73 of the CGST Act, 2017 was 31st January 2024 and 30th April 2024 respectively. The Show Cause Notice and Order in Original was issued on 13.12.2021 and 30.12.2022. The demand would have sustained even if re-determined under Section 73 as the SCN and Order was issued within the time limits prescribed under Section 73 (10) of the CGST Act. Thus no prejudice has been caused to the appellant by the Order in Appeal where the order has been modified by the appellate authority itself with penalty amount reduced and imposed under Section 73(9) of the CGST Act in the place of Section 74(1) of the CGST Act.
4. We have paid close attention to the contentions on jurisdiction raised by the learned counsel for the appellant and the rejoinder of the learned AR.
4.1 On perusal of the OIO, we find that as per para 7 of the SCN, the appellant was asked to show cause as to why:
(i) the ITC taken on invoices on which tax was not paid by the supplier as should not be held ineligible and disallowed and recovered in terms of Section 74 of the CGST Act, 2017.
(ii) Interest under section 50(3) of the CGST Act, 2017 should not be demanded and recovered;
(iii) Penalty should not be imposed under Section 74(1) of CGST Act, 2017
4.2 On perusal of corrigendum to the OIO it is seen that:
(i) Part of the demand was confirmed and ordered to be recovered under section 74(1) of the CGST Act.
(ii) Interest was charged under section 50(3) of the CGST Act on the amount confirmed.
(iii) Penalty of Rs 953(CGST), Rs 394839 (IGST) was levied under section 74(1) of the CGST Act read with section 20 of the IGST Act and Rs 953(SGST) under section 74(1) of the KGST Act.
4.3 On perusal of the OIA we find that paragraphs 17 and 18 read as follows:
17. From the above, it is well-evident the Appellant could not produce substantive proof that the supplier has paid the tax collected from Appellant through the GSTR3B returns filed for the excess ITC availed. The Appellant has not produced relevant certificates from his supplier in accordance with CBIC Circular No.183/15/2022- GST dated 27.12.2022, which could have been considered to grant relief to the extent certified by the supplier. Appellant has failed to explain or account for the difference with necessary documentary proof which clearly shows that supplier did not remit the said amount to the Government. Appellant’s contentions are seen to be incorrect since supplier’s GSTIN stands cancelled and the last GSTR-3B was filed up to the month of July 2018 only. There is also no other evidence before me that would work in favor of the Appellant with regard to the ineligible credit confirmed as recoverable, in view of non-fulfillment of the conditions prescribed under Section 16(2)(c) ibid. Thus, I am of the considered view that the benefit of CBIC Circular No. 183/15/2022-GST dated 27.12.2022 cannot be extended to the subject Appellant and accordingly proceed to uphold the confirmed demand of Rs.3,96,295/- along with applicable interest.
18. I find that in the instant case, the Appellant could not have known whether her supplier has defaulted on the taxes or paid the taxes collected in their GSTR-3B returns since she has no control over the activities of her suppliers. As such, there is no evidence to prove that the Appellant has committed any fraud, given wilful misstatement, colluded with the suppliers or suppressed facts of any kind. Thus, there is no justification to impose equivalent penalty under Section 74 of the CGST Act, 2017. As the Appellant had availed ineligible input credit in excess of what is reflected in GSTR-2A, the adjudicating authority could only have invoked Section 73(9) which he has partially invoked under Sl.No.(iii) of the operative portion of the Order dated 30.12.2022 vis-à-vis the KGST Act, 2017 although amount quantified is incorrect. I concur with the contentions of the Appellant that the impugned ITC was availed only on the strength of the invoices issued by the supplier and there is no mens rea involved. Accordingly, I modify the penalty imposed by the Respondent to Rs.39,534/- under Section 73(9) of the CGST Act, 2017 and Rs.10,000/- under Section 73(9) of the KGST Act, 2017 (totalling Rs.49,534/-
4.4 On a careful reading of the above it is seen that the Appellate Authority, has made a clear cut and well-reasoned finding with regard to non-applicability of section 74 in the instant case. This finding of the appellate authority has not been challenged by the Revenue either by way of appeal or cross-objections. This is confirmed on perusal of the written submissions made by the learned AR for the Revenue, which are silent on this aspect.
4.5 However, the Appellate Authority having made a finding as to the non-applicability of section 74, proceeded to uphold the demand confirmed by the adjudicating officer under section 74(1) of the Act, in the OIO. We therefore find that this act of upholding the demand is in contradiction to his own findings, is a classic case of non-application of mind and therefore the demand of tax as confirmed in the OIA is liable to be set aside.
4.6 We also find that the penalty proposed in the SCN is under section 74(1) of the CGST Act. The Appellate Authority while finding penalty under 74(1) was not sustainable, ought to have stopped right there. Instead, he has suo motu proceeded to impose penalty under section 73(9) of the CGST Act. We find that the SCN contains no charge with regard to imposition of penalty under section 73(9) of the CGST Act. We find that this gratuitous act of the appellate authority is dehors the charges as laid out in the SCN and therefore the OIA is liable to be set aside for having travelled beyond the scope of the SCN.
4.7 We find that the learned AR has contended that the demand would have sustained even if re-determined under Section 73 as the SCN and Order was issued within the time limits prescribed under Section 73 (10) of the CGST Act. Thus no prejudice has been caused to the appellant by the Order in Appeal where the order has been modified by the appellate authority itself with penalty amount reduced and imposed under Section.
4.8 We find that once the appellate authority has clearly made a finding against the invocation of section 74 in the instant case, his subsequent act of upholding the demand of tax under section 74(1) cannot be sustained, notwithstanding the fact that even if (hypothetically) the impugned SCN were issued under section 73, the demand was still within the limitation period. We find that the department having issued a SCN under section 74 cannot be permitted to plead at the second appellate stage before the Tribunal that notwithstanding the finding of the first appellate authority that there are no grounds for invocation of section 74, (a finding which has not been contested by the Revenue) the demand can still be confirmed under section 73(9) ( on a ground /section which was not invoked in the SCN). We therefore find no merit in the above contentions of the learned AR.
4.9 We find that once it is clearly established on facts that the penalty in the Appellate order has been passed under a different section than that with which the appellant was charged with in the SCN, the said penalty is null and void. Revenue cannot be allowed to plead that the penalty levied under the 73(9) of the CGST Act (by the Appellate Authority) in the place of Section 74(1) of the CGST Act (invoked in the SCN) is much less and therefore is in order.
4.10 The fact remains that the appellants were never asked to show cause as to why penalty should not be levied on them under section 73(9) of the CGST Act and the order in appeal is therefore liable to be set aside on this ground also.
4.11 We therefore find that on these jurisdictional grounds alone, the appellant is entitled to succeed in the appeal and we find that no useful purpose will be served by discussing the other grounds raised by the appellant.
5. In view of our findings as above, the appeal is allowed and the Order in Appeal is set aside, with consequent relief.
Order pronounced in open court on 08/10/2026
