Background

After an audit for July 2017–March 2022, an SCN under Section 74 sought recovery of excess ITC of Rs. 8,56,877 with interest and penalty. The adjudicating authority dropped the demand, finding that the ITC reconciliation had been disclosed through GSTR-9C on the portal and that no non-declaration under Explanation 2 to Section 74 was shown. The Joint Commissioner (Appeals) reversed this on the department’s new plea that the taxpayer had not replied to the audit enquiry or report.

Final Verdict

The Tribunal held that the SCN rested on bald assertions with no evidence; every transgression of Sections 16(2)/42(1) cannot attract Section 74 unless fraud, wilful misstatement or suppression with intent to evade is alleged and proved by evidence, and the onus is on the department to show that the taxpayer knowingly took ineligible credit. The failure to reply to the audit enquiry was never a ground in the SCN, so the appellate authority’s reliance on it violated natural justice; it also did not identify what information was sought, when, or under which provision, and never dislodged the finding of disclosure through GSTR-9C. Relying on CBIC Instruction No. 05/2023-GST and Cosmic Dye Chemical and Ballarpur Industries (SC), it answered both questions in the negative: merely taking ineligible self-assessed ITC, or merely failing to reply to an audit enquiry or final audit report, does not by itself amount to suppression under Section 74. The Order-in-Appeal was set aside and the appeals allowed with consequential relief.