Facts of the Case:

In this case, the appellant challenged the Order-in-Appeal dated 28.02.2026 arising from proceedings initiated under Section 73 of the KGST/CGST Acts for FY 2017–18. On scrutiny of the appellant’s returns and comparison of GSTR-3B with GSTR-2A, the adjudicating authority confirmed a demand of ₹62,628 on account of ITC not reflected in GSTR-2A and ₹97,458 in relation to debit notes not declared on the GST portal, along with interest and penalty. An additional interest demand was raised for alleged delay in filing returns. The appellant contended that it had paid ₹99,449.20 in excess of its actual outward tax liability, whereas the excess ITC identified from the updated GSTR-2A was only ₹31,313 each under CGST and SGST. It further submitted that it had produced the relevant debit and credit notes supporting sales returns of ₹3,55,206, which were rejected because they had not been uploaded on the GST portal. The First Appellate Authority upheld the demand without adequately addressing the appellant’s submissions, prompting the appellant to approach the Tribunal.

Issue:

Whether proceedings under Section 73 of the KGST/CGST Acts could be initiated for alleged short-payment arising from disallowance of ITC when the shortfall was offset by excess output tax already paid; whether the excess output tax payment was subject to the test of unjust enrichment; whether debit and credit notes relating to sales returns could be rejected solely because they were not uploaded on the GST portal during FY 2017–18; and whether interest for delayed filing of returns could be sustained when the show cause notice did not specify the relevant months, tax base and period of default.

Held That:

The GSTAT observed that the First Appellate Authority had rejected the appellant’s detailed submissions through a brief, non-speaking finding, without demonstrating proper application of mind. It held that the appellate order was arbitrary and violative of the principles of natural justice. On merits, the Tribunal noted that the excess output tax paid by the appellant exceeded the shortfall attributed to the disputed ITC. It held that, in the facts of the case, the excess output tax could be set off against the shortfall arising from disallowed ITC, and requiring the appellant to pay the demand first and subsequently seek a refund of the excess tax would be an exercise in futility. Relying on the principles laid down by the Kerala High Court in Rejimon Padickaparamabil Alex v. Union of India, 2024-TIOL-2024-HC-KERALA-GST, the Tribunal concluded that there was no net short-payment warranting proceedings under Section 73 and that the consequential demand of tax, interest and penalty was unsustainable.

On the question of unjust enrichment, the Tribunal held that the excess output tax payment in the case fell within the exception contemplated under Section 54(8)(c) of the KGST/CGST Acts and was not subject to the test of unjust enrichment. Regarding the disputed sales returns, the Tribunal found that the adjudicating authority had confirmed the demand on the ground that the counterparty had not declared the relevant debit note in its returns, although the show cause notice had alleged non-production of supporting documents. Holding that the adjudicating authority could not travel beyond the grounds stated in the show cause notice, the Tribunal further observed that GSTR-2A became a mandatory return only from October 2019. Accordingly, debit and credit notes relating to FY 2017–18 could not be invalidated merely because they had not been uploaded on the portal, provided they were otherwise in order.

The Tribunal also set aside the interest demand relating to delayed filing of returns, observing that the show cause notice failed to identify the specific months of default, the tax amount on which interest was calculated and the relevant period. It further noted that the interest quantified in the notice differed from the amount confirmed in the original order, without any explanation for the discrepancy. The Tribunal held that the demand was vague and contrary to the principles of natural justice. Accordingly, the appeal was allowed, the Order-in-Appeal dated 28.02.2026 was set aside, and consequential relief was granted to the appellant.

Case Name: CHENNAMKUDIYIL ERNAKULAM TIMBERS Versus  THE COMMISSIONER OF STATE TAX, STATE GST DEPARTMENT,
KERALAM STATE, THIRUVANANTHAPURM dated 16.10.2026