The GST Appellate Tribunal's Principal Bench delivered a landmark order regarding the invocation of Section 74 of the GST Act. The case involved M/s Sterling & Wilson Pvt. Ltd., represented by Zarine Yazdi Daruvala, who faced a show cause notice for alleged tax short payment due to discrepancies between their GSTR-1 and GSTR-3B returns. The authorities treated these discrepancies as indicative of tax evasion and initiated proceedings under the extended limitation period.
The petitioner argued that the discrepancies were due to reporting differences that required reconciliation rather than punitive measures. Despite the absence of concrete evidence of fraud, suppression, or wilful misstatement, the proceedings under Section 74 continued against them.
The core issue addressed was whether proceedings under Section 74 could continue without establishing fraud or suppression, and if a mismatch between GSTR-1 and GSTR-3B could automatically indicate tax evasion. The Tribunal concluded that Section 74, being a severe penal provision, requires clear evidence of fraud or wilful suppression to be invoked. A simple mismatch does not suffice for establishing tax evasion without thorough reconciliation.
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The Tribunal emphasized the necessity for the department to conduct detailed verification before invoking extended limitation and penalty provisions. In the absence of concrete findings of mens rea, the proceedings under Section 74 were deemed unsustainable, marking a significant decision in the interpretation and application of GST laws.
Order Date - 11 February 2026
Parties: M/s Sterling & Wilson Pvt. Ltd. Through ZARINE YAZDI DARUVALA Vs COMMISSIONER, ODISHA, COMMISSIONERATE OF CT GST & ORS.
Facts -
- M/s Sterling & Wilson Pvt. Ltd., through Zarine Yazdi Daruvala, was issued a show cause notice under Section 74 of the GST Act alleging tax short payment based on mismatch between GSTR-1 and GSTR-3B returns.
- The department treated the difference in outward supply figures as evidence of tax evasion and initiated proceedings invoking the extended limitation period.
- The petitioner contended that the mismatch arose due to reporting differences and required reconciliation, not penal action.
- Despite no specific findings of fraud, suppression, or wilful misstatement, proceedings under Section 74 were continued.
Issue -
- Whether Section 74 proceedings can continue without establishing fraud or suppression, and whether GSTR-1 vs GSTR-3B mismatch automatically proves tax evasion?
Order -
- The Tribunal observed that Section 74 is a serious penal provision and can be invoked only when ingredients like fraud or wilful suppression are clearly made out.
- Mere mismatch between GSTR-1 and GSTR-3B does not automatically establish tax evasion without proper reconciliation.
- The department must conduct a detailed verification before invoking extended limitation and penalty provisions.
- In absence of concrete findings of mens rea, proceedings under Section 74 were held unsustainable and the matter was remanded back for re-adjudication.
