19/02/2026
GSTAT’s First Ruling – Section 74 Not Invocable for GSTR-1 vs GSTR-3B Mismatch Without Fraud.
Sterling and Wilson Pvt. Ltd vs COMMISSIONER, ODISHA, COMMISSIONERATE OF CT GST & ORS.- GSTAT Principal Bench .
The Goods and Services Tax Appellate Tribunal (GSTAT) has delivered its first reported judgment, laying down crucial principles on the incorrect invocation of Section 74 of the CGST Act, 2017 in cases involving mismatch between GSTR-1 and GSTR-3B.
The ruling brings long-awaited clarity on three recurring issues under GST litigation:
1. Whether mere return mismatch can justify proceedings under Section 74
2. Whether appellate authorities can re-determine tax liability under Section 73
3. The scope of powers of GSTAT in second appeals.
Key Issues Before the Tribunal
1. Whether proceedings under Section 74 are sustainable when fraud, suppression, or intent to evade tax is absent
2. Whether the First Appellate Authority or Tribunal can themselves re-determine tax liability under Section 73
3. Whether GSTAT has jurisdiction to examine questions of fact in second appeal.
Findings and Legal Analysis by GSTAT
1. Section 74 Cannot Be Invoked Without Mens Rea.
The Tribunal categorically held that mere mismatch between GSTR-1 and GSTR-3B does not automatically attract Section 74. It was noted that: Transactions were recorded in books of accounts Debit and credit notes were disclosed There was no finding of fraud, wilful misstatement, or suppression In absence of any positive act indicating intent to evade tax, proceedings under Section 74 were held to be legally unsustainable. The Tribunal observed that Section 74 is a penal provision and must be strictly construed.
2. GSTAT Is the Final Fact-Finding Authority.
Rejecting the Revenue’s argument, the Tribunal held that GSTAT has full jurisdiction to examine questions of fact and law under Section 112 of the CGST Act read with Rule 112. The Tribunal distinguished: Second appeals under GST law from Second appeals under Section 100 of the Code of Civil Procedure, 1908 It held that limitations applicable to High Courts under CPC do not apply to GSTAT, making it the last adjudicating authority on facts.
3. Appellate Authorities Cannot Re-Determine Tax Under Section 73
A crucial aspect of the judgment relates to Section 75(2) of the CGST Act. The Tribunal held that: Once proceedings under Section 74 fail, Only the Proper Officer is empowered to re-determine tax liability under Section 73 Neither the First Appellate Authority nor the Tribunal can themselves compute or confirm demand under Section 73. This conclusion was reinforced by CBIC Circular No. 254/11/2025-GST, which clarifies that re-determination must be done only by the Proper Officer.
4. Protection of Honest Taxpayers and Natural Justice
In strong taxpayer-friendly observations, the Tribunal held that every honest taxpayer deserves protection.
Final Decision of GSTAT
-Proceedings under Section 74 were held unsustainable.
-Orders of the Proper Officer and First Appellate Authority, insofar as they treated the case under Section 73, were set aside .
-Matter was remanded to the Proper Officer for fresh adjudication under Section 73.
-Taxpayer was granted liberty to amend returns, submit reconciliation, and be heard on merits .
-No order as to costs was passed.
Regards
Adv Rahul Jha
Delhi NCR
7011821936
011-4176599
