The GSTAT Thiruvananthapuram Bench has held that a demand issued under Section 74 of the CGST Act cannot survive when the department fails to prove fraud, wilful misstatement, collusion or suppression of facts with intent to evade tax. The ruling also confirms that an appellate authority cannot introduce a new factual basis or convert the case into a Section 73 proceeding on its own.
What the GSTAT decided
Taxscan reported the decision on 15 October 2026 as 2026 TAXSCAN (GSTAT) 209. The appeal concerned Chelco Bind Grips, a proprietary concern manufacturing screws, bolts, nuts, washers and similar iron and steel articles. The proceedings followed a GST audit for financial year 2018–19.
As an Amazon Associate I earn from qualifying purchases.
The bench rejected the Section 74 demand because the department had not established the fraud-based ingredients required by that provision. An allegation that input tax credit (ITC) was ineligible, or that there was a mismatch in records, did not by itself prove deliberate concealment or an intention to evade tax.
The Tool Desk
Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →The open Taxscan report does not disclose the complete case number, coram or counsel details. Those particulars should not be inferred from the published summary.
#1 Best Overall
Why an ITC mismatch did not sustain Section 74
The department must prove deliberate conduct
Section 74 is the fraud-based demand route. The department must show more than an incorrect credit claim: it must connect the taxpayer to fraud, wilful misstatement, collusion or suppression of facts carried out with intent to evade tax. The reasoning reproduced from the Thiruvananthapuram Bench’s Santhome Latex Enterprises order places the evidentiary burden on the department to demonstrate that the taxpayer knew the credit was ineligible and nevertheless claimed it.
A bare equation of “ineligible ITC” with “suppression” is not enough. The department needs material showing the required mental element and deliberate concealment.
Portal disclosures weigh against concealment
The related order treated information already available through the GST system as significant. Return data, GSTR-2A or Table 8 information, GSTR-3B filings and GSTR-9C reconciliation were disclosed on the portal. When the underlying transactions and reconciliation are visible in statutory records, the department must explain what was deliberately hidden and identify evidence of an intent to evade.
Rank #2
- Ideal for Gifting
- Ideal for a bookworm
- Compact for travelling
A missed audit reply is not automatically suppression
The bench also rejected an attempt to rely on the taxpayer’s failure to reply to an audit enquiry or the final audit report when that allegation was not pleaded in the show-cause notice. The appellate authority cannot cure an evidentiary gap by adding a new factual ground later. Doing so denies the taxpayer a fair opportunity to answer the case actually made against it.
The order states: “In the absence of any other evidence to the contrary, mere failure to reply to the audit enquiry / final audit report by the tax payer would not amount to suppression of facts in terms of section 74 of the CGST Act, 2017.” — GSTAT Thiruvananthapuram Bench, order dated 21 August 2026.
“Wilful” requires more than an inaccurate statement
The bench applied Supreme Court principles that the word “wilful” qualifies misstatement or suppression. An incorrect statement is therefore not automatically a wilful misstatement. The surrounding evidence must show knowing, deliberate conduct rather than an error, disagreement over eligibility or an inadequately explained reconciliation.
CBIC evidence requirement for Section 74 notices
The order relied on CBIC Instruction No. 05/2023-GST. It requires material evidence of fraud, wilful misstatement or suppression with intent to evade tax before Section 74 is invoked. That evidence should form part of the show-cause notice itself.
Quick wins for a faster PC:
Repair Windows errors before they cause bigger problemsFix Now →Scan for outdated or missing drivers - takes under a minuteDriver Scan →Clear out junk files and repair common Windows errorsFree Scan →For a taxpayer, this makes the notice foundational. The relevant questions are whether it identifies the specific act said to be fraudulent, explains how the intent to evade is inferred, and attaches or describes the evidence supporting that inference. A later order cannot safely replace missing particulars with a different allegation.
What happens to the underlying tax after Section 74 fails
Rejecting Section 74 does not necessarily decide whether a tax shortfall or ineligible credit exists. It removes the fraud-based legal route and its associated penalty framework. The statutory mechanism for any remaining tax issue is Section 75(2) of the CGST Act.
Rank #4
As explained in an EY alert dated 20 February 2026 concerning TS-73-GSTATDEL-2026-GST, when an appellate authority, GSTAT or a court finds a Section 74 notice unsustainable because fraud has not been established, Section 75(2) requires the proper officer to re-determine the tax as if the notice had been issued under Section 73.
The appellate forum does not itself conduct that Section 73 adjudication. The matter is sent back to the proper officer, who must make the determination under the non-fraud route and follow the applicable procedural safeguards.
| Issue | Section 74 position | After Section 74 is rejected |
|---|---|---|
| Required basis | Fraud, wilful misstatement, collusion or suppression with intent to evade tax, supported by material evidence | Any tax question is considered through the Section 73 route under Section 75(2) |
| Effect of an ITC mismatch | A mismatch or ineligible-credit allegation alone does not prove the required intent | The proper officer may still examine eligibility and tax, but without treating the case as established fraud |
| Who decides next | The notice and original adjudication must establish the Section 74 case | The proper officer, not GSTAT or the appellate authority, conducts the re-determination |
| New grounds on appeal | A ground absent from the show-cause notice cannot be used to sustain the demand without a fair opportunity to respond | The remanded proceeding must follow the notice and Section 73 procedure |
What taxpayers should examine in a Section 74 notice
- Match the allegation to the statutory ingredients. Check whether the notice identifies fraud, wilful misstatement or suppression and explains the alleged intent to evade.
- Reconcile the cited figures. Compare the notice with GSTR-2A or Table 8 data, GSTR-3B returns, GSTR-9C reconciliation and other records already filed on the portal.
- Separate error from concealment. An eligibility dispute or arithmetic mismatch should not be treated as proof of knowing, deliberate evasion without supporting evidence.
- Object to new factual grounds. If the order relies on non-response to an audit enquiry, a final audit report or another fact omitted from the show-cause notice, raise the natural-justice objection expressly.
- Preserve the Section 75(2) remedy. If the fraud allegation fails, the taxpayer can insist that any remaining tax issue be handled by the proper officer under the Section 73 route rather than decided directly by the appellate forum.
How this ruling should be read with related cases
Future Section 74 disputes will turn on the particulars of each notice and record. The most useful comparison points are whether the notice pleads and evidences the fraud ingredients, whether the disputed information was already disclosed in returns or reconciliations, whether the authority introduced a new ground on appeal, whether a Section 73 re-determination remains legally available, and whether the forum has jurisdiction to remand.
Best Value
- It can be a gift option
- Comes with secure packaging
- Helpful in various ways
The detailed Santhome Latex Enterprises order records an ineligible-credit demand of ₹8,56,877. That figure belongs to that related matter and is not the amount in the Chelco Bind Grips case.
Bottom line
The GSTAT ruling draws a firm line between an ITC disagreement and a fraud case. Section 74 requires evidence of deliberate evasion, not merely an adverse reconciliation. If that evidence is absent, the demand cannot be sustained on Section 74; any surviving tax question must return to the proper officer for a Section 73 determination under Section 75(2).
Quick Recap
Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.
Recommended Free Tools
