Facts of the Case:

In this case, the appellant M/s Sterling & Wilson Pvt. Ltd., was subjected to demand proceedings on account of mismatch between outward tax liability declared in GSTR-1 and tax discharged in GSTR-3B for FY 2018-19. The Department initiated proceedings under Section 74 of the CGST Act alleging suppression and wilful misstatement on the ground that higher liability was declared in GSTR-1 as compared to tax paid through GSTR-3B.

The assessee contended that the mismatch was attributable to reconciliation differences arising from issuance of credit notes, debit notes, advance adjustments, and technical/system constraints prevalent during the early phase of GST implementation. It was argued that all transactions were duly recorded in the books of accounts and there was no element of fraud or intent to evade tax.

The Adjudicating Authority confirmed the demand under Section 74. On appeal, the First Appellate Authority held that fraud or suppression was not established and therefore Section 74 was not invocable. However, it proceeded to sustain the demand by treating the case as one falling under Section 73 and imposed penalty accordingly. Accordingly approached the GST Appellate Tribunal (GSTAT).

Issue:

Whether proceedings initiated under Section 74 can continue when fraud, suppression, or wilful misstatement is not established. Whether mismatch between GSTR-1 and GSTR-3B automatically establishes tax evasion without detailed reconciliation. 

Held that: 

The Tribunal held that once the First Appellate Authority recorded a categorical finding that fraud, wilful misstatement, or suppression was not made out, invocation of Section 74 was unsustainable. In such circumstances, by virtue of Section 75(2) of the CGST Act, the proceedings could only continue under Section 73.

However, the Tribunal clarified that determination under Section 73 must be carried out by the Proper Officer. The Appellate Authority or Tribunal cannot itself quantify or confirm demand under Section 73 upon failure of Section 74 proceedings. Therefore, the order confirming demand was set aside. The Tribunal further observed that mere mismatch between GSTR-1 and GSTR-3B does not automatically establish tax evasion. Where the assessee produces reconciliation statements supported by credit notes, debit notes, advance adjustments, and accounting records, the matter requires factual verification rather than summary confirmation.

Accordingly, the impugned orders were set aside and the matter was remanded to the Proper Officer for fresh adjudication strictly under Section 73 after granting adequate opportunity of hearing. The assessee was permitted to submit reconciliation statements and relevant documents in support of its claim.

Case Name: M/s Sterling & Wilson Pvt. Ltd.  vs . Commissioner, Odisha, Commissionerate of CT GST & Ors. dated 11.02.2026

To read the complete judgement 2026 Taxo.online 355