Wrongful ITC Availment Alone Cannot Justify Tax Evasion Proceedings: Kolkata GSTAT

The Kolkata Bench of the Goods and Services Tax Appellate Tribunal (GSTAT) has held that invocation of Section 74 of the Central Goods and Services Tax Act, 2017 requires material establishing deliberate suppression, fraud or wilful misstatement with an intent to evade tax, and cannot rest merely on an allegation of wrongful availment of Input Tax Credit (ITC).

A Two Member Bench comprising Judicial Member S.G. Chattopadhyay and Technical Member Bijoy Kumar Kar partly allowed the Revenue's appeals against Power Tech Global Private Limited, while holding that the proceedings under Section 74 were unsustainable and directing re-determination of the liability under Section 75(2). It observed:

“In our considered view the Revenue could not bring on record any material to prove a deliberate intention on the part of the taxpayer to evade tax and as a result the Revenue was not correct in invoking Section 74(1) of the CGST Act against the taxpayer in this case.”

The dispute concerned a proportionate ITC of Rs. 74.75 lakh which the Revenue alleged was attributable to exempt supplies made during FY 2017-18 to 2019-20. The Revenue had treated the sale of duty credit scrips under the Merchandise Exports from India Scheme (MEIS) as exempt supplies and alleged suppression of the ITC availment in GSTR-3B.

The Tribunal also considered the retrospective applicability of an amendment to Explanation 1 to Rule 43 of the CGST Rules, introduced through Notification No. 14/2022 dated 5 July 2022. The amendment excluded the value of duty credit scrips from the aggregate value of exempt supplies for computing ITC reversal.

It held that the amendment operated prospectively from 5 July 2022 and could not be applied to the transactions undertaken during FY 2017-18 to 2019-20. It therefore disagreed with the first appellate authority's decision to apply the amendment retrospectively.

On the separate question of invoking Section 74, however, the Bench found that the Revenue had failed to establish deliberate suppression or an intent to evade tax. It noted that Power Tech Global had filed GSTR-3B and annual returns and had produced invoices relating to the sale of duty credit scrips.

Referring to Section 74 and CBIC Instruction No. 05/2023-GST, it held that fraud, wilful misstatement or suppression of facts with an intent to evade tax must be established before the extended provisions under Section 74 can be invoked. It also referred to the Supreme Court's interpretation of “suppression of facts”, which requires deliberate non-disclosure.

Accordingly, the GSTAT held the Section 74 proceedings unsustainable and directed the proper officer to re-determine the tax liability under Section 75(2), treating the notice as one issued under Section 73, after providing Power Tech Global an opportunity of hearing.