GSTAT New Delhi: GSTR-1 and GSTR-3B Mismatch Insufficient to Trigger Section 74 Proceedings — Fraud Must Be Established Independently
Introduction
The Principal Bench of the Goods and Services Tax Appellate Tribunal (GSTAT), New Delhi, has delivered a landmark ruling in M/s Sterling & Wilson Pvt. Ltd. v. Commissioner, Odisha Commissionerate of CT & GST & Ors. [2026 (2) TMI 726 – GSTAT New Delhi], firmly holding that a numerical discrepancy between figures reported in GSTR-1 and GSTR-3B cannot, standing alone, serve as a valid basis for initiating proceedings under Section 74 of the CGST Act, 2017.
This ruling carries significant weight in the current GST compliance landscape, where tax authorities have increasingly relied on system-generated mismatches to issue Show Cause Notices without conducting any meaningful reconciliation or establishing the presence of fraudulent intent on the part of the assessee.
Background and Facts of the Case
The Scrutiny Proceedings
M/s Sterling & Wilson Pvt. Ltd., the appellant before the Tribunal, came under departmental scrutiny for the financial year 2018-19. During the course of examination, the GST authorities noticed that the tax liability declared in GSTR-1 — the outward supply return — was higher than the corresponding tax actually discharged through GSTR-3B, the monthly summary return.
The department treated this discrepancy as evidence of suppression of taxable turnover and proceeded to issue a Show Cause Notice under Section 74 of the CGST Act, 2017. The notice levelled the following specific allegations against the assessee:
- Short payment of GST liability
- Wilful suppression of material facts
- Intent to evade payment of tax
On the basis of these allegations, the department raised a demand comprising tax, interest, and an equivalent penalty as envisaged under Section 74.
Arguments Raised by the Assessee
Grounds of Challenge
The assessee strongly contested the departmental action, asserting that the observed mismatch was entirely attributable to legitimate accounting and procedural factors and did not reflect any actual suppression of turnover. The following specific explanations were placed before the Tribunal:
Advance receipts and subsequent adjustments — Advances were reported in GSTR-1 at the time of receipt, with corresponding adjustments made in later periods upon issuance of invoices, resulting in timing-related differences.
Credit notes issued in subsequent tax periods — Credit notes pertaining to supplies made in the relevant period were raised in later periods, causing a misalignment between GSTR-1 and GSTR-3B figures.
Accounting treatment of debit notes — Differences in the treatment and timing of debit notes contributed to the apparent discrepancy.
Timing differences in return reporting — Inherent timing gaps between the filing of GSTR-1 and GSTR-3B resulted in figures that appeared mismatched but were in fact reconcilable.