GST Tribunal Sets Aside ₹3.06 Lakh ITC Demand Against MPS Steels After Authorities Switched From GSTR-3B Filing To Supplier Tax Non-Payment

MPS Steels challenged an order confirming, among other amounts, an input tax credit (ITC) demand of ₹3,06,504 for FY 2018–19.

The show-cause notice alleged that the appellant had claimed ITC on invoices from suppliers who had not filed GSTR-3B returns, invoking Section 16(2)(aa) of the CGST Act.

The adjudicating authority instead confirmed the demand under Section 16(2)(c), on the basis that the suppliers had not paid the tax to the Government.

The Appellate Authority upheld that demand, relying on Commissioner of Service Tax v. ITC Ltd.

The appellant appealed to the Tribunal, contending that Section 16(2)(aa) was not in force during the relevant period and that the demand could not be confirmed on a ground absent from the notice.

Section 75(7) of the CGST Act prohibits confirmation of a demand on grounds other than those specified in the show-cause notice.

Section 16(2)(aa), which concerns invoice details furnished by the supplier and communicated to the recipient, came into force on 1 January 2022; Section 16(2)(c) concerns payment of the tax charged on the supply to the Government.

A show-cause notice defines the scope of the proceedings, and the Revenue cannot introduce a new ground at a later stage.

The Tribunal relied on M/s Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East Commissionerate, [2025] 177 taxmann.com 478 (SC), and the principles in C.C.E., Bhubaneswar-I v. Champdany Industries Ltd. and Commissioner of Central Excise, Nagpur v. Ballarpur Industries Ltd.

It distinguished Commissioner of Service Tax v. ITC Ltd., 2014 (36) S.T.R. 481 (Del.), which concerned omission to specify a statutory sub-clause where the relevant facts and case had otherwise been put to the assessee.

The notice alleged only that suppliers had not filed GSTR-3B returns and invoked Section 16(2)(aa); it did not allege that the suppliers had failed to pay the tax to the Government under Section 16(2)(c).

The adjudicating authority nevertheless confirmed the demand on that latter basis, without putting the appellant on notice of the changed allegation or giving it an opportunity to meet it.

The Tribunal held that this was not merely an incorrect or omitted statutory reference: it was a material shift in the factual and legal basis of the demand.

Accordingly, ITC Ltd. did not apply, and confirming the demand on the new ground breached Section 75(7).

The Tribunal therefore did not need to determine the appellant’s substantive eligibility for the ITC.

It allowed the appeal and set aside paragraphs 1, 4 and 6 of the Appellate Authority’s order insofar as they related to the disputed ITC demand, including the associated interest and penalty, with consequential relief.