Bengaluru GSTAT Cancels Manpower Firm’s Section 74 Penalty, Finding Return Omissions Alone Did Not Show Intent To Evade Tax

In brief

The question

1. Whether the omission to disclose the relevant transactions in returns, and payment following audit verification, justified imposing penalties under Section 74(1) in the circumstances of the case.

The court held

The Tribunal answered the issues in the appellant’s favour, holding that the penalties under Section 74(1) were unjustified on the facts and did not satisfy the applicable statutory and evidentiary requirements.

It also directed

It allowed the appeal, set aside the Appellate Authority’s order and cancelled the penalties.

01Facts

The appellant, a manpower-services provider, challenged the Appellate Authority’s confirmation of penalties under Section 74 of the CGST/KGST Acts concerning reverse-charge liabilities on legal and sponsorship services, supplies from unregistered persons and rent-a-cab services, and alleged non-reversal of ITC on amounts payable to a vendor that had been written off.

¶ 2–5

The Adjudicating Authority had invoked Section 74 principally because the relevant values were not declared in GSTR-3B and payment followed audit verification.

¶ 2–5

The Appellate Authority confirmed the penalties; the appellant appealed to the Tribunal.

¶ 2–5

The appeal concerned the justification for imposing penalties under Section 74(1).

¶ 6–8

02Issues

i.1. Whether the omission to disclose the relevant transactions in returns, and payment following audit verification, justified imposing penalties under Section 74(1) in the circumstances of the case.

¶ 8–13

ii.2. Whether the authorities’ findings and consideration of the appellant’s explanations satisfied the requirements for invoking Section 74.

¶ 14–20

03Law Applied

Section 73 applies to tax short-paid or ITC wrongly availed for reasons other than fraud, wilful misstatement or suppression; Section 74 applies where such non-payment or credit arises due to fraud, wilful misstatement or suppression of facts.

¶ 10

“Suppression” under Explanation 2 to Section 74 includes non-declaration of information required in a return, statement, report or other document furnished under the Act or rules, and failure to furnish information when requested in writing by the proper officer.

¶ 13

Under Tata Steel Ltd. v. Union of India, (2026) 45 Centax 361, the officer must be satisfied that fraud, wilful misrepresentation or suppression led to the short payment or mismatch; the foundational facts supporting that inference must be evident, and merely reciting statutory terms is insufficient.

¶ 14–15

CBIC Instruction No. 05/2023–GST dated 13 December 2023 similarly requires material evidence of fraud, wilful misstatement or suppression to evade tax before Section 74(1) is invoked.

¶ 15

Provisions in the judgment · 8 · Linked ones open on LawLens

Central Goods and Services Tax Act, 2017 Section 9 Section 16 Section 73 Section 74

KARNATAKA GOODS AND SERVICES TAX ACT, 2017 Section 9 Section 16 Section 73 Section 74

04Reasoning

The Tribunal held that omission from returns and payment after audit verification were not, by themselves, conclusive proof of the ingredients of Section 74(1); nor did the presence of transactions in the books conclusively establish or negate suppression.

¶ 13

The authorities had relied on non-disclosure in returns without adequately considering the appellant’s explanations, including its position on client-related legal expenses, small reimbursements, rent-a-cab invoices on which GST had been charged, and the written-off vendor amount.

¶ 16–19

In the Tribunal’s view, the record and the authorities’ findings did not establish the requisite intention to evade tax or the material basis for suppression required by Tata Steel and the CBIC instruction.

¶ 15, 20