(2026) 1 GSTAT E- Journal 122 (Thiruvananthapuram)Section 74Decision: In Favour of Assessee
GSTAT on Section 74 Suppression: GSTR-9C Annual Disclosures Negate Fraud, and Audit Non-Reply Cannot Be a Fresh Appellate Ground
The GSTAT Thiruvananthapuram Bench held that mere availment of ineligible self-assessed ITC cannot attract Section 74 where reconciliation was uploaded in GSTR-9C. Appellate authorities cannot sustain Section 74 on unpleaded grounds such as failure to reply to an audit query.
Case Name / Parties
M/s Santhhome Latex Enterprises v. Commissioner of CGST, Thiruvananthapuram
Appeal Number
APL/21/TVP/2026 (Final Order No. 04/TVP/KERALA/2026)
Tribunal Bench
Thiruvananthapuram Bench
Date of Judgment / Order
21/08/2026
Coram
Shri Subramanya Rayaprol, Member (Judicial) • Shri Ramamoorthi Sriram, Member (Technical)
For Appellant: Shri Unnikrishnan M, Chartered Accountant
For Respondent: Shri Suresh S, Authorized Representative
Facts of the Case
The Appellant manufactures and supplies Centrifugal Rubber Latex. Following a departmental audit under Section 65 for the period July 2017 to March 2022, a Show Cause Notice was issued under Section 74(1) of the CGST Act proposing recovery of alleged ineligible ITC of ₹8,56,877/- with interest and 100% penalty. The original adjudicating authority (Superintendent) dropped the proceedings, finding that invoice-wise reconciliation explaining the ITC differences had already been uploaded as part of the taxpayer's annual Form GSTR-9C filings on the GST portal, thereby negating 'non-declaration' under Explanation 2 to Section 74. The Revenue appealed, and the Joint Commissioner (Appeals), Kochi reversed the order, sustaining Section 74 on the fresh ground that the taxpayer had not replied to the audit enquiry and final audit report.
Issues Before GSTAT
- 1Whether mere self-assessment and availment of ineligible ITC in the Electronic Credit Ledger constitutes 'suppression of facts' under Section 74(1) of the CGST Act in the absence of positive evidence of fraud.
- 2Whether the disclosure of invoice-wise ITC reconciliations in Form GSTR-9C on the GST portal negates the charge of suppression under Explanation 2 to Section 74.
- 3Whether the First Appellate Authority was legally justified in sustaining Section 74 on a new ground (non-response to audit enquiry) that was never alleged in the Show Cause Notice.
- 4Whether failure to file a formal reply to an audit observation under Section 65 can legally constitute suppression of facts.
Relevant Statutory Provisions & Rules
Statutory Sections
Section 16 of CGST Act, 2017Section 16(2) of CGST Act, 2017Section 17 of CGST Act, 2017Section 17(1) of CGST Act, 2017Section 42 of CGST Act, 2017Section 42(1) of CGST Act, 2017Section 50 of CGST Act, 2017Section 65 of CGST Act, 2017Section 73 of CGST Act, 2017Section 74 of CGST Act, 2017Section 74(1) of CGST Act, 2017Section 74(9) of CGST Act, 2017Section 122 of CGST Act, 2017Section 122(2)(b) of CGST Act, 2017
GST Rules
Rule 88B of CGST Rules, 2017
Circulars & Notifications
Instruction No. 05/2023-GST dated 13.12.2023
Contentions of the Parties
Appellant / Taxpayer Contentions
- •The proceedings were founded solely on return data, GSTR-2A vs GSTR-3B figures, and GSTR-9C reconciliations, not on parallel records, fake invoices, or clandestine operations.
- •All relevant invoice reconciliations were uploaded on the portal with GSTR-9C, establishing that no facts were suppressed.
- •The First Appellate Authority transgressed natural justice by inventing a new charge of audit non-response that did not form part of the SCN, violating the Supreme Court doctrine in Ballarpur Industries.
- •Section 65 does not prescribe a mandatory statutory reply to a Final Audit Report, and silence during audit cannot be converted into criminal fraud.
Respondent / Revenue Contentions
- •The taxpayer availed ITC in contravention of Sections 16(2) and 17(1) on a self-assessment basis and failed to reverse blocked credit.
- •Failure to provide information to the audit team when called for amounts to suppression under Explanation 2 to Section 74.
- •The Department unearthed the ineligible credit only during audit, justifying invocation of extended limitation under Section 74(1).
Findings of GSTAT
Mere availment of ineligible or excess ITC, even if in contravention of Section 16(2) or Section 42(1), cannot by itself be equated with fraud, wilful misstatement, or suppression of facts. The Department must establish by cogent material that the taxpayer knew the credit was ineligible and deliberately availed it with intent to evade tax.
Where invoice-wise reconciliation was disclosed through GSTR-9C annual return filings on the GST common portal, the charge of 'non-declaration of facts or information' under Explanation 2 to Section 74 is legally negated.
The First Appellate Authority committed a fatal violation of the principles of natural justice by reversing the OIO on a completely new ground (failure to reply to audit queries) that was absent from the Show Cause Notice. An adjudicating or appellate authority cannot travel beyond the SCN. Followed Supreme Court in Commissioner of Central Excise v. Ballarpur Industries Ltd.
Under the scheme of Section 65, failure to reply to an audit observation or final audit report does not, in the absence of other independent evidence of fraud, constitute suppression of facts.
The SCN was issued in total violation of binding CBIC Instruction No. 05/2023-GST, which mandates that Section 74 cannot be mechanically invoked without material evidence of fraud.
Ratio Decidendi
Key Legal Principle
“Mere availment of ineligible self-assessed ITC does not attract Section 74 where reconciliations are disclosed in annual returns (GSTR-9C). Appellate authorities violate natural justice when sustaining Section 74 on new grounds not alleged in the SCN, and silence during an audit enquiry cannot be construed as wilful suppression of facts.”
Final Decision & Relief Granted
Outcome: The appeal was allowed with consequential relief. The impugned Order-in-Appeal was set aside and the Order-in-Original passed by the Superintendent dropping the demand under Section 74 was restored in full.
Relief Granted: Setting aside of the Order-in-Appeal; complete exoneration from Section 74 tax demand, interest, and penalties; restoration of the original adjudication order.
Operative relief was verified against the Tribunal's order and accurately summarized without altering its legal effect.
Practical Implications for Taxpayers
- Always upload comprehensive invoice-wise reconciliations when filing Form GSTR-9C; this serves as conclusive documentary proof negating Section 74 suppression charges in future audits.
- If an audit team issues an SCN under Section 74, immediately demonstrate that all figures were drawn from returns and portal data rather than unrecorded transactions.
- If the appellate authority upholds a demand on grounds not found in the original SCN (such as alleged non-cooperation during audit), challenge the order as a breach of natural justice.
Practical Takeaways for Tax Professionals
- Scrutinize the SCN vs OIA: apply the Supreme Court's Ballarpur Industries principle to strike down any appellate order that relies on reasons not contained in the original show cause notice.
- Rely heavily on CBIC Instruction No. 05/2023-GST, which explicitly bars field officers from mechanically invoking Section 74 without independent evidence of fraudulent intent.
- Emphasize that the Superintendent's original order dropping the demand was based on facts and that the first appellate authority cannot reverse factual findings without pointing out specific errors.
SKM
Editorial Commentary
SKM Laws Professional Analysis
The Santhhome Latex ruling delivers a masterclass in administrative law and statutory boundaries. Departmental appellate authorities often treat non-cooperation or silence during an audit as an automatic license to invoke the extended period under Section 74 and slap on 100% penalties. GSTAT Thiruvananthapuram took a firm stand: an audit is a fact-finding administrative process under Section 65, not a penal trial. If the underlying figures were already uploaded to the GST common portal via GSTR-9C, the department was in full possession of the facts. More importantly, the Tribunal defended the foundational doctrine of natural justice: Revenue cannot issue an SCN on one ground (Section 16 mismatch) and then uphold it in appeal on a completely different ground (audit non-response).
Related Cases & Precedents
(2026) 1 GSTAT E-Journal 1
Precedent holding that Section 74 cannot apply to return discrepancies without mens rea.
(2026) 1 GSTAT E-Journal 51
Reinforcing that interpretation differences do not constitute suppression.
Related GST Tools & Utilities
Source Citation & Forensic References:
Official Citation: (2026) 1 GSTAT E- Journal 122 (Thiruvananthapuram)
Source Publication: GSTAT E-Journal, Volume I (Till 31.08.2026), Published by Goods and Services Tax Appellate Tribunal
Journal Pages: 122-131
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.