Facts of the Case:

In this case, the assessee a registered taxable person, was subjected to proceedings pursuant to a consolidated show cause notice dated 08.01.2024 covering FY 2017-18 to 2023-24. The Department proposed three principal demands: ₹20,92,513 towards excess ITC based on the difference between GSTR-3B and GSTR-2A; ₹43,44,046 towards ITC allegedly availed on invoices issued by 13 non-existent/fictitious suppliers; and ₹6,45,910 towards alleged RCM liability on certain inward supplies. The latter two demands were proposed under Section 74 of the CGST Act on the allegation of fraud, wilful misstatement and suppression of facts.

The adjudicating authority confirmed ₹17,22,513 of the ITC mismatch under Section 73, ₹43,44,046 under Section 74 towards ITC from the alleged fictitious suppliers, and ₹5,30,976 towards RCM liability under Section 74, along with applicable interest and penalties. In appeal, the demand was substantially reduced. The first appellate authority restricted the ITC mismatch to ₹1,93,812 under Section 73, reduced the RCM liability to ₹20,472 under Section 73, but retained the entire ₹43,44,046 ITC demand relating to the 13 suppliers, though it shifted the provision from Section 74 to Section 73 on the ground that fraud, wilful misstatement or suppression had not been established.

The Revenue challenged the appellate order before the GSTAT, particularly contending that the ITC availed from the 13 suppliers was fraudulent and that the taxpayer had failed to establish actual receipt and physical movement of goods. The taxpayer, on the other hand, contended that the suppliers were GST-registered and active when the transactions took place, payments had been made through banking channels and subsequent cancellation of suppliers’ registrations could not retrospectively establish fraud.

Issue:

Whether ITC availed on invoices issued by 13 alleged non-existent/fictitious suppliers was liable to be denied under Section 74 of the CGST Act on the ground of fraud, wilful misstatement or suppression of facts? Whether production of tax invoices and proof of payment through banking channels was sufficient to establish eligibility to ITC in the absence of evidence demonstrating actual receipt and physical movement of goods? Whether the alleged RCM liability could be sustained under Section 74 in the absence of evidence of deliberate suppression of taxable transactions?

Held That:

The Tribunal partly allowed the Revenue’s appeal and restored the ITC demand of ₹43,44,046 under Section 74, along with applicable interest and penalty. It held that although the burden of proving ITC eligibility under Section 155 lies upon the taxpayer, mere production of tax invoices and proof of payment through banking channels are not sufficient to discharge that burden. Relying upon the Supreme Court’s decision in State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd., the Tribunal held that the taxpayer must establish the actual transaction and physical movement of goods, including relevant transportation, delivery and other corroborative evidence. In the present case, no evidence establishing actual physical movement of the goods from the 13 alleged suppliers to the taxpayer was produced. The suppliers were found to be non-existent entities which had obtained GST registrations using fictitious addresses and had allegedly never conducted business. In these circumstances, the Tribunal concluded that the taxpayer was aware that the suppliers were non-existent and that the goods covered by the invoices had not actually been received. The availment and utilisation of ITC in the self-assessed GSTR-3B was consequently held to constitute wilful misstatement and fraudulent conduct, justifying invocation of Section 74.

On the RCM issue, however, the Tribunal upheld the appellate authority’s substantial reduction of the demand. Relying upon the Supreme Court’s decision in Pushpam Pharmaceuticals Co. v. Collector of Central Excise, it reiterated that “suppression” under Section 74 must be deliberate and with an intention to evade tax. Since the relevant expenses were reflected in the taxpayer’s accounts and there was no material establishing deliberate suppression, Section 74 could not be invoked. The surviving RCM liability of ₹10,236 each under CGST and SGST was therefore rightly recoverable under Section 73.

The Tribunal also upheld the appellate authority’s reduction of the GSTR-3B/GSTR-2A mismatch demand to ₹1,93,812, observing that the appellate authority was statutorily empowered under Section 75(8) to modify the tax determined by the adjudicating authority. Further, relying upon Ambika Traders v. Additional Commissioner, Adjudication, DGGSTI, CGST, Delhi North, the Tribunal held that a consolidated SCN covering multiple financial years is not per se impermissible, particularly in ITC fraud cases where transactions across different periods may have to be examined together to establish a fraudulent pattern.

Accordingly, the Tribunal restored the ₹43.44 lakh ITC demand under Section 74, while upholding the reduced demands under Section 73. It also directed that if the taxpayer applies for the benefit of Section 128A, the competent authority should dispose of such application within three months from its filing.

Case Name: Atanu Mondal For the Commissioner CGST & CX, Kolkata North Commissionerate Versus Partner Jay Technical Services. Dated 01.09.2026

Citation No. 2026 Taxo.online 2691