(2026) 1 GSTAT E-Journal 51 (Kolkata)Section 74Decision: Partly in Favour of Assessee
GSTAT on MEIS Duty Credit Scrips: Rule 43 ITC Exclusion Is Prospective, but Section 74 Cannot Apply Without Suppression
The GSTAT Kolkata Bench held that Notification No. 14/2022 amending Rule 43 to exclude MEIS Duty Credit Scrips from exempt supplies is prospective from 05.07.2022. However, Section 74 cannot be invoked against taxpayers who filed returns regularly; under Section 75(2), tax must be determined under Section 73.
Case Name / Parties
Commissioner CGST & Cx, Kolkata North v. M/s. Power Tech Global Private Limited
Appeal Number
APL/62/KLK/2026, APL/74/KLK/2026 & APL/75/KLK/2026
Tribunal Bench
Kolkata Bench
Date of Judgment / Order
05/08/2026
Coram
Justice S.G. Chattopadhyay, Member (Judicial) • Shri Bijoy Kumar Kar, Member (Technical)
For Appellant: Shri Shankha Majumdar, Superintendent, CGST
For Respondent: Shri Subham Tulsian, Chartered Accountant
Facts of the Case
The taxpayer manufactures electrical apparatus (switchgears, panels) and also traded in Merchandise Exports from India Scheme (MEIS) duty credit scrips. During FY 2017–18 to 2019–20, it had taxable supplies of ₹17,37,61,985/- and exempt supplies of MEIS scrips worth ₹10,93,43,077/-, availing ITC of ₹1,95,15,412/-. The Revenue issued an SCN under Section 74(1) of the CGST Act alleging wilful suppression and demanding reversal of proportionate ITC of ₹74,75,604/- under Section 17(2) read with Rules 42 and 43, plus interest and 100% penalty. The adjudicating authority confirmed the demand. On appeal, the First Appellate Authority held that the amendment to Rule 43 by Notification No. 14/2022 dated 05.07.2022 (excluding MEIS scrips from exempt turnover) was beneficial and curative, operating retrospectively, and fully exonerated the taxpayer. Revenue appealed to GSTAT.
Issues Before GSTAT
- 1Whether the Revenue's appeal was barred by CBIC Circular No. 207/1/2024-GST prescribing a monetary limit of ₹20 lakhs for filing appeals before the GSTAT.
- 2Whether the amendment to Explanation 1 to Rule 43 of the CGST Rules by Notification No. 14/2022 dated 05.07.2022 operates retrospectively or prospectively.
- 3Whether the Revenue was legally justified in invoking the extended period of limitation and penalty under Section 74(1) of the CGST Act in the absence of deliberate suppression.
Relevant Statutory Provisions & Rules
Statutory Sections
Section 2(47) of CGST Act, 2017Section 11 of CGST Act, 2017Section 17 of CGST Act, 2017Section 17(2) of CGST Act, 2017Section 73 of CGST Act, 2017Section 74 of CGST Act, 2017Section 74(1) of CGST Act, 2017Section 74A of CGST Act, 2017Section 75 of CGST Act, 2017Section 75(2) of CGST Act, 2017Section 120 of CGST Act, 2017Section 164 of CGST Act, 2017Section 168 of CGST Act, 2017
GST Rules
Rule 42 of CGST Rules, 2017Rule 43 of CGST Rules, 2017
Circulars & Notifications
Notification No. 14/2022-Central Tax dated 05.07.2022Notification No. 35/2017-Central Tax (Rate) dated 13.10.2017Notification No. 2/2017-Central Tax (Rate) dated 28.06.2017Circular No. 207/1/2024-GST dated 26.06.2024CBIC Instruction No. 05/2023-GST dated 13.12.2023
Contentions of the Parties
Appellant / Taxpayer Contentions
- •Sale of MEIS duty credit scrips was expressly declared an exempt supply under Notification No. 35/2017-CT(Rate) dated 13.10.2017, requiring proportionate reversal under Rules 42 and 43.
- •Notification No. 14/2022 explicitly specified its commencement date as 05.07.2022; the Central Government did not exercise its power under Section 164(3) to give it retrospective effect.
- •The monetary limit circular does not bar the appeal because clause 3(viii) applies the limit to the composite amount of all three appeals (₹74.75 lakhs > ₹20 lakhs), and clause 4(iv) excludes recurring questions of statutory interpretation.
Respondent / Revenue Contentions
- •MEIS scrips are incentive rewards that do not require any input goods or services; reversing common ITC on their sale frustrates export incentives.
- •Notification No. 14/2022 was curative and clarificatory in nature to relieve unintended hardship, and beneficial delegated legislation should be applied retrospectively.
- •All sales turnover, tax liabilities, and ITC availed were regularly disclosed in monthly Form GSTR-3B and annual returns; there was zero concealment or fraud to justify Section 74.
Findings of GSTAT
The Revenue's appeal is maintainable: under clause 3(viii) of Circular 207/1/2024-GST, the monetary limit in a composite order disposing multiple appeals applies to the aggregate sum, exceeding ₹20 lakhs. Furthermore, CBIC circulars do not have a legally binding effect on the Appellate Tribunal.
The amendment to Rule 43 Explanation 1(d) by Notification No. 14/2022 is prospective in operation from 05.07.2022. The rule-making authority had express power under Section 164(3) to give retrospective effect but chose not to do so. Input Tax Credit is a statutory concession, not a vested right. Curative retrospective principles from Sree Sankaracharya University do not apply to substantive rule changes.
However, invocation of Section 74(1) was illegal and unsustainable. Suppression of facts requires deliberate, contumacious intention to evade tax. Where all transactions were reported in GSTR-3B and invoices were disclosed, difference of legal interpretation cannot be equated with fraud. Under Section 75(2), the Proper Officer is directed to determine liability under Section 73 within the statutory period with hearing.
Ratio Decidendi
Key Legal Principle
“An amendment to GST Rules excluding items from exempt supply calculations operates prospectively from the date of gazette notification unless expressly made retrospective under Section 164(3). However, Section 74 cannot be invoked against transparent return disclosures; Section 75(2) mandates redetermination under Section 73.”
Final Decision & Relief Granted
Outcome: The appeals of the Revenue were disposed of with directions. The First Appellate Authority's finding that Rule 43 operated retrospectively was set aside, but the invocation of Section 74 was quashed; the Proper Officer was directed under Section 75(2) to determine tax liability under Section 73 within the statutory period after granting a personal hearing.
Relief Granted: Quashing of Section 74 SCN and 100% penalty; conversion to Section 73 proceedings under Section 75(2) with mandatory opportunity of hearing.
Operative relief was verified against the Tribunal's order and accurately summarized without altering its legal effect.
Practical Implications for Taxpayers
- Taxpayers selling MEIS or other duty credit scrips prior to 05.07.2022 cannot claim retrospective exemption from Rule 42/43 ITC reversal.
- However, if Revenue issued Section 74 SCNs demanding 100% penalty on MEIS reversals, taxpayers should challenge the penalty on the ground of absence of suppression, as return disclosures eliminate Section 74.
- Upon Section 75(2) conversion to Section 73, check whether the normal 3-year limitation period under Section 73(10) has already expired for the disputed tax periods.
Practical Takeaways for Tax Professionals
- Examine CBIC Circular 207/1/2024 threshold challenges carefully: ensure the aggregate disputed demand across all connected SCNs is computed, as composite orders aggregate amounts.
- Do not argue that beneficial rule amendments are automatically retrospective; focus arguments on statutory language under Section 164(3) and lack of mens rea.
- Where an appellate body sets aside Section 74 charges, use Section 75(2) to ensure the matter is adjudicated afresh under Section 73 with all statutory defenses intact.
SKM
Editorial Commentary
SKM Laws Professional Analysis
This decision of the Kolkata Bench provides a textbook application of two core tax jurisprudence principles. On the substantive question of Rule 43, GSTAT rightly followed the Supreme Court's ruling in Sree Sankaracharya University, holding that statutory tax concessions such as ITC cannot be expanded retrospectively under the guise of 'curative' intent when the government explicitly assigned a prospective commencement date. On the procedural question, GSTAT preserved the sacred threshold of Section 74: mere divergence of legal interpretation between the taxpayer and the audit team does not constitute 'suppression of facts'. By invoking Section 75(2), GSTAT ensured that taxpayers cannot be subjected to draconian fraud penalties for adopting an arguable statutory construction.
Related Cases & Precedents
(2026) 1 GSTAT E-Journal 1
Leading GSTAT authority on Section 74 suppression and Section 75(2) remand.
(2026) 1 GSTAT E-Journal 122
Holding that statutory return filings negate Section 74 suppression.
Related GST Tools & Utilities
Source Citation & Forensic References:
Official Citation: (2026) 1 GSTAT E-Journal 51 (Kolkata)
Source Publication: GSTAT E-Journal, Volume I (Till 31.08.2026), Published by Goods and Services Tax Appellate Tribunal
Journal Pages: 51-74
Legal Information Disclaimer
This case law analysis is published strictly for informational, educational, and research purposes. It does not constitute legal, tax, or professional advice. The ratio decidendi and commentary reflect professional editorial interpretations of the Goods and Services Tax Appellate Tribunal's reported judgment. Readers must refer to the full certified order of the Tribunal before initiating or defending litigation.