Tax Vista

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Edn. 275 - 16th February 2026

Kasi Viswanathan V

GSTAT - The Beginning

The GST Appellate Tribunal has now delivered its first order as the second appellate authority under the GST law. The missing layer is now in place. The High Courts may feel some institutional relief. With this ruling, the Tribunal has formally commenced its role as the statutory fact-finding and appellate forum contemplated under Section 112.

The very first matter concerns a difference between returns and records, a pattern not unfamiliar in GST litigation. A difference between GSTR-1 and GSTR-3B led to proceedings under Section 74 for 2018-19. The variations were attributed to credit notes, adjustment of advances and prior-period corrections reflected in GSTR-3B but not mirrored in GSTR-1. The original authority confirmed tax of Rs.27,06,634 along with interest and equal penalty under section 74, the order stated to be passed without personal hearing. The first appellate authority found that there is no intent to evade tax and therefore modified the penalty from 100 percent to 10 percent under section 73(9), while sustaining the tax and interest. On merits, the rejection rested on delay in issuance of few credit notes under section 34(2), mismatch between periodic and annual disclosures in GSTR-9 and GSTR-9C, and absence of proof regarding reversal or non-utilisation of ITC by recipients.

The appeal was filed before the Principal Bench, as the State Bench in Odisha is yet to become operational. The Revenue appears to have objected to the Principal Bench entertaining the matter and further argued, relying upon the decision in Hamida Vs. Md. Khalil, that issues not raised before the lower authorities cannot be urged at the stage of second appeal.

Relying on the reasoning noticed in [2024-VIL-1573-BOM], the Tribunal overruled the objections on jurisdictional issue and proceeded to decide the matter.

As regards the SC decision in Hamida, the Tribunal explained the distinction between the limited jurisdiction of a High Court in a civil second appeal under section 100 of the Code of Civil Procedure and the powers of the GSTAT under section 112. A High Court, in second appeal, is confined to substantial questions of law. The GSTAT, however, is not so limited. Sections 117 and 118 make it clear that the filter of substantial question of law operates at the stage of appeal to the High Court and thereafter to the Supreme Court. The Tribunal therefore held that it is the last fact-finding forum and is competent to examine questions of fact, including additional material. In effect, unlike a civil second appeal, the GSTAT is not confined to substantial questions of law. The objection that it cannot revisit factual aspects was rejected.

On the question whether the first appellate authority could itself determine penalty under section 73 after holding that section 74 was not attracted, the Tribunal examined section 75(2) along with CBIC Circular No. 254/11/2025-GST dated 27.10.2025. It held that where proceedings initiated under section 74 are found not maintainable for want of ingredients, the appellate authority cannot convert the proceedings and determine the demands under section 73. In such a situation, the matter must go back to the proper officer for determination under section 73.

On facts, the Tribunal noted that the debit and credit notes were duly accounted in the books and supported. The lapse was essentially in return reporting and reconciliation with annual records. It was also undisputed that there was no intention to evade tax and that this finding had not been challenged. At the same time, the appellant had not conclusively established that the ITC passed on to recipients had not been utilised.

The Tribunal recorded that the relevant period belonged to the early phase of GST, when return filing processes were still evolving and largely manual, as contrasted with the present system of auto-population. Errors in reporting and reconciliation were not uncommon. While the benefit of the Supreme Court's suo motu extension in W.P.(C) No. 3 of 2020 was not directly applicable, a pragmatic view was considered appropriate where tax may have been paid but the explanation had not been fully examined. The submission that remand would create a precedent was declined with the observation that each case must be decided on its own facts. The objective was to ensure an effective adjudication after granting proper opportunity. Coupled with the fact that the proper officer had not granted personal hearing before passing the order, the Tribunal considered it appropriate to remand the matter to proper officer to pass a fresh order after granting an opportunity of personal hearing and examining the genuineness of the credit notes.

Two broader aspects merit attention. First, the issue of the Principal Bench hearing the matter is significant in the context of phased constitution of Benches. The observation in [2024-VIL-1573-BOM] regarding the functioning of the Principal Bench had earlier caused some uncertainty at that time. With the Bench now functioning, the ratio is applicable. In any event, the restriction in the proviso to section 109(5) is confined to State Benches. The Principal Bench has jurisdiction. It is perhaps also a reminder that State Benches must become operational at the earliest.

Second, this first ruling reflects the present character of GST litigation. Many disputes arise from reconciliation of returns and records rather than from complex interpretational questions. In that backdrop, the Tribunal's emphasis on a pragmatic approach and avoidance of a purely technical view assumes importance.

The reliance on Hamida was not misplaced in principle. However, the real controversy here was narrower. The Revenue's objection was essentially that fresh evidence or new aspects cannot be introduced at the stage of second appeal. The discussion, however, moved into the larger question whether a second appellate forum is confined to substantial questions of law. That larger debate was arguably not necessary in the present factual context. In any case, the records in question had already been placed before the first appellate authority. This was therefore not a case of an entirely new ground being raised for the first time before the Tribunal.

This was not a case confined purely to the consequences flowing from section 75(2). There was a substantive challenge on merits, including reconciliation. In such a situation, a remand serves a functional purpose. Of course, aspects such as credit notes issued beyond the statutory time limit may stand on a different footing, where remand may not alter the outcome. In the end, this is a remand. For the first order of a long-awaited Tribunal, that is significant enough. [2026-VIL-06-GSTAT-DEL-PB]

(The views expressed are personal. The author can be reached for feedback or queries on v.k.vishwa@gmail.com)