GSTAT State Bench, Cuttack: In an appeal concerning the invocation of Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act), on account of delayed filing of statutory returns for seven months, the Division Bench of Suchismita Misra, Member (Judicial), and Ananda Satpathy, Member (Technical, State)*, held that mere failure to file monthly returns within the prescribed time, without evidence of fraud, wilful misstatement or suppression of facts with intent to evade tax, cannot sustain the invocation of Section 74 of the Act. The Tribunal observed that the statutory scheme under Sections 39 and 46 of the Act provides for issuance of notice in Form GSTR-3A and best judgment assessment in cases of non-filing of returns. However, in the present case, instead of following the prescribed statutory mechanism, the Department proceeded with an inspection under Section 67 of the Act.
The Tribunal further observed that the respondent had deposited the estimated cash liability before commencement of the inspection and subsequently filed all seven pending returns with full discharge of the return liability, along with the applicable interest. Referring to Explanation 2 to Section 74, the Tribunal held that suppression arises where material facts or information required to be declared in statutory returns have not been disclosed. Since the turnover and tax liability declared in the returns were accepted by the Department, and no material information was alleged to have been misstated or suppressed, the essential ingredients for invoking Section 74 were not established. Accordingly, the Tribunal upheld the Order-in-Appeal insofar as it held that Section 74 was not legally invocable. However, setting aside the modification of penalty under Section 73(9), read with Section 75(2) of the Act, the Tribunal remanded the matter to the original Adjudicating Authority for determination of liability, if any, under Section 73, subject to the applicable statutory limit.
Background
The respondent was registered under the CGST Act for the retail supply of various fast moving consumer goods. The respondent failed to file its prescribed GSTR-1 and GSTR-3B returns for the period from August 2017 to February 2018. Following a visit by the Anti-Evasion Wing officials to its business premises on 19 April 2018, the pending returns were filed, with the returns from August 2017 to January 2018 filed on 20 April 2018 and the February 2018 return on 6 June 2018. However, before the departmental visit, the Respondent had already deposited ₹ 73,58,992/- towards the estimated tax liability on 31 March 2018.
Despite filing the pending returns and discharging the tax liability, a show cause notice under Section 74 of the Act was issued, proposing recovery of tax along with interest under Section 50(1) and equivalent penalty under Section 74(1). As the respondent failed to participate in the adjudication proceedings, the Adjudicating Authority passed an ex parte order under Section 74(9), confirming the demand on the ground of suppression of facts and persistent failure to file statutory returns. The amount of ₹ 73,58,992/- already deposited was appropriated towards the tax demand.
Aggrieved, the respondent preferred an appeal under Section 107(1) of the Act. The Appellate Authority held that invocation of Section 74 was not justified and modified the demand by reducing the penalty to 10% under Section 73(9) of the Act. Challenging the said modification, the Commissioner of CGST and Central Excise, Rourkela, directed the present appeal under Section 112(3), seeking restoration of the original demand. The Revenue contended that prolonged non-filing of returns and payment of tax only after departmental intervention established suppression of facts and intent to evade tax. It further challenged the Appellate Authority’s power to reclassify the demand under Section 73, relying upon Section 75(2) of the Act. The appeal was heard in the absence of the Respondent, who had not filed any cross-objection.
Analysis
The Tribunal observed that under Section 39 of the CGST Act, read with Rule 61 of the CGST Rules, registered taxpayers are required to file monthly returns in Form GSTR-3B by the twentieth day of the succeeding month. In case of failure to file returns, the statutory scheme provides for issuance of notice under Section 46 in Form GSTR-3A, followed by best judgment assessment in the event of continued default. However, in the present case, no such action under the prescribed statutory mechanism was undertaken, and instead, an inspection under Section 67 was conducted on 19 April 2018. The Tribunal further noted that the respondent had filed all seven pending returns along with full discharge of the return liability, and the interest payable on the delayed cash component had also reportedly been paid before initiation of proceedings under Section 74 on 27 December 2022. The amount of ₹ 73,58,992/- already paid had been appropriated in the original adjudication order, leaving no amount outstanding for recovery.
The Tribunal observed that Section 74 can be invoked only where non-payment or short payment of tax is occasioned by fraud, wilful misstatement or suppression of facts with an intent to evade tax. It emphasised that it is mandatory to bring on record the commission of fraud, specific instances of wilful misstatement or suppression of material facts with intent to evade tax. Referring to Explanation 2 to Section 74, the Tribunal held that suppression arises where facts or information required to be declared in a return, statement, report or other document furnished under the Act have not been declared. Thus, a case of suppression would arise only after filing of the statutory returns, where material information required to be declared therein has not been disclosed. In the present case, the turnover and tax liability declared in the returns were accepted by the Department, and no material information relating to taxable turnover, rate of tax or input tax credit was alleged to have been misstated or suppressed. The Tribunal further noted that no allegation was made regarding failure to furnish any information when called upon.
The Tribunal also took note of the fact that the respondent had deposited the estimated cash liability on 31 March 2018, before commencement of the inspection on 19 April 2018, and that the cash component of the total return liability was only ₹ 96,012/-, constituting approximately 1.30% of the total liability of ₹ 73,58,992/-. The interest liability arising from delayed payment of the cash component had also reportedly been discharged before commencement of the adjudication proceedings. It observed that the deposit of the amount under any head of GST directly goes into the revenue account of the respective Government, irrespective of whether the amount is subsequently debited against any return liability. Such conduct demonstrated the Respondent’s intent not to withhold the net tax liability and was inclined towards bona fide compliance.
Accordingly, mere failure to file seven monthly returns within the prescribed time, without evidence establishing fraud, wilful misstatement or suppression with intent to evade tax, could not sustain the invocation of Section 74. The Tribunal, however, clarified that its observations regarding deposit of the estimated cash liability and payment of interest were subject to verification of the payment records.
Decision
The Tribunal upheld the Order-in-Appeal to the extent that it held that Section 74 of the CGST Act was not legally invocable against the Respondent. However, insofar as the modification of the penalty under Section 73(9), read with Section 75(2) of the Act, was concerned, the Tribunal set aside that part of the order and remanded the matter to the original Adjudicating Authority for determination of liability, if any, under Section 73, subject to the applicable statutory limit. Accordingly, the appeal was disposed of, with the order pronounced in open court on 29 October 2026.
[Sanjeeb Kumar Dehuri v. Mukesh Kumar Kakani, APL/5/CTT/2026, decided on 29-10-2026]
*Order authored by: Ananda Satpathy (Member Technical, State)
Advocates who appeared in this case :
For Appellant: Manikant, Advocate
