GSTAT Quashes 100% Penalty: Mere GSTR-3B and GSTR-2A Mismatch Does Not Justify Invocation of Section 74

The Goods and Services Tax Appellate Tribunal (GSTAT) has delivered a crucial ruling concerning the mechanical invocation of extended limitation periods and maximum penalties by revenue authorities. The tribunal categorically held that a mere discrepancy between Input Tax Credit (ITC) claimed in Form GSTR-3B and the credit reflected in Form GSTR-2A cannot automatically trigger the penal provisions of Section 74 of the CGST Act.

This decision provides significant relief to the assessee community, reinforcing the legal principle that the department must establish concrete evidence of fraud, wilful misstatement, or deliberate suppression of facts to levy a 100% penalty. Furthermore, the tribunal clarified that paying tax liabilities along with interest prior to the issuance of a Show Cause Notice (SCN) generally concludes the proceedings under Section 73, provided there is no malicious intent to evade taxes.

Factual Matrix of the Dispute

The dispute traces back to an investigation initiated by the Anti-Evasion Wing of the Bengaluru West GST Commissionerate. The authorities scrutinized the GST returns of the assessee for the period spanning from July 2017 to November 2021.

During this verification process, the department identified a substantial mismatch between the ITC claimed by the assessee in their Form GSTR-3B and the auto-populated data available in Form GSTR-2A. The discrepancy resulted in an alleged excess ITC availment amounting to exactly Rs. 2,74,20,293/-.

The chronological sequence of events unfolded as follows:

  • 28.12.2021: The Superintendent of the Anti-Evasion Wing issued a communication directing the assessee to furnish comprehensive details regarding their inward supplies for the disputed period.
  • 13.1.2022: The assessee submitted the requested information and documentation to the department.
  • 18.1.2022: Acknowledging the discrepancy, the assessee submitted a formal letter admitting the lapse. On the very same day, the assessee proactively deposited the entire tax amount of Rs. 2,74,20,293/- along with the applicable interest by debiting their electronic credit ledger.
  • 21.1.2022: The department officially initiated an investigation (O.R. No.52/2021-22). During the recording of statements, the proprietrix clarified that the excess credit was claimed purely due to an inadvertent oversight and emphasized that the disputed credit had never been utilized.
  • 28.2.2023: Despite the proactive payment, the adjudicating authority issued an SCN invoking the extended period of limitation under Section 74. The notice alleged that the assessee had suppressed facts and that the excess ITC would have gone unnoticed had the Anti-Evasion Wing not conducted its verification.
  • 17.01.2024: The Joint Commissioner of Central Tax passed the order-in-original, confirming the tax demand of Rs. 2,74,20,293/-, levying interest under Section 50, and imposing an equivalent 100% penalty of Rs. 2,74,20,293/- under Section 74(1).