Section 74 Penalty Cannot Be Imposed Where Tax and Interest Were Voluntarily Paid Before SCN and No Fraud or Suppression Is Established — GSTAT Bengaluru Bench Applies Supreme Court’s Tata Steel in Two Detailed Decisions

The Goods and Services Tax Appellate Tribunal, Bengaluru Bench, has delivered two significant decisions on the same day setting aside Section 74 penalties, applying the Supreme Court’s mandate in Tata Steel Ltd. v. Union of India (2026 INSC 920) that the extended period and penal provisions under Section 74 cannot be triggered by mechanically reciting statutory terms like ‘suppression’ or ‘wilful misstatement’, and that the SCN itself must set forth foundational facts demonstrating a conscious device to evade tax. The rulings — by Member (Technical) Sudha Koka and Member (Judicial) Srikanth Venkatraman in APL/10/BUR/2026 (Conduent Business Services India LLP, decided 15.09.2026) and APL/16/BUR/2026 (I-Nxt, decided 15.09.2026) — establish the early substantive jurisprudence of the GSTAT on the threshold requirements for invoking Section 74.

In Conduent, the appellant had voluntarily deposited the entire agreed tax of Rs. 7,78,693 and interest of Rs. 5,77,235 through DRC-03 months before the SCN was issued, and all records including GSTR-3B, GSTR-2A and TRAN-1 were available on the departmental portal. The Adjudicating Authority had dropped Section 74 penalty on Issues 1 and 3 with explicit findings of no positive act of suppression, but the First Appellate Authority reversed this on Revenue’s appeal holding that the original authority had ‘no option’ but to impose penalty once tax was confirmed under Section 74. In I-Nxt, the appellant had availed excess ITC of Rs. 2,74,20,293 due to GSTR-3B/GSTR-2A mismatch arising from third-party supplier defaults, and paid the entire amount with interest prior to the SCN upon the discrepancy being pointed out during verification.

The Tribunal held in both cases that (a) the existence of a mismatch can enable determination of tax under Section 73, but for Section 74 the Adjudicating Authority must be independently satisfied that the mismatch occurred due to fraud, wilful misstatement or suppression — mere use of such words is insufficient; (b) routine audit discoveries under Section 65 or GSTR-2A/3B mismatches detected during verification do not automatically trigger extended limitation or penal provisions; (c) where tax and interest are fully discharged prior to the SCN with no deliberate intent to evade established, Section 73(5) read with 73(6)/73(8) provides immunity from penalty; (d) default by a third-party supplier cannot be attributed to the recipient to sustain a charge of suppression; and (e) the Appellate Authority’s reasoning that the contravention ‘would have continued but for the audit’ misconstrued the legal definition of suppression. Both appeals were allowed and Section 74 penalties were set aside.

- 2026-juristway.com-2502-GSTAT(Bengaluru)-GST; 2503-GSTAT(Bengaluru)-GST  |  GSTAT Bengaluru Bench  |  APL/10/BUR/2026 & APL/16/BUR/2026  |  15.09.2026