GST WEEKLY UPDATE :22/2026-27 (30.08.2026) By CA Vipul Khandhar

1. Reconciliation of GST & ITR data:A GST and ITR Turnover Mismatch:

A turnover mismatch occurs when the gross sales, revenue, or receipts reported in GST Returns (GSTR-1 and GSTR-3B) differ from the gross turnover or gross receipts disclosed in the Income Tax Return (such as ITR-3, ITR-4, or ITR-6 under the head “Profits and Gains from Business or Profession”).

1. GST Records: || • GSTR-1 & GSTR-3B filings (Monthly/Quarterly)                 ||    • Annual GST Return (GSTR-9) & Reconciliation (GSTR-9C)        ||                                                                   || 2. Accounting Records:                                            ||    • Audited Profit & Loss Statement and Balance Sheet            ||    • Item-wise & Party-wise Sales and Purchase Registers          ||    • Customer Advance Ledgers                                     ||                                                                   || 3. Supporting Compliance Records:                                 ||    • Credit and Debit Note Registers with proof of delivery       ||    • Bank Statements showing realization dates                    ||    • Export Shipping Bills & Bills of Lading (if applicable)     |

|    • Annual Information Statement (AIS) & Form 26AS

GST and ITR Turnover Differences due to common issue:

Not every mismatch indicates tax evasion or an error. Many differences arise due to genuine timing differences and regulatory discrepancies between GST laws and Income Tax accounting rules.

1. Advance Receipts

• GST Law: GST on advances received for the supply of services is payable in the month the advance is received (Notification No. 66/2017 exempted advances for goods, but services remain taxable).
• Income Tax Law: Revenue is recognized on an accrual basis when performance obligations are met (as per Accounting Standard AS-9 / Ind AS 115). Advances are treated as a balance sheet liability, not P&L turnover.

2. Credit Notes & Sales Returns

• GST Law: Credit notes issued for sales returns or post-supply discounts must be reported in GSTR-1 to reduce outward tax liability.
• Income Tax Law: Credit notes might be adjusted under “Net Sales” or recorded under a separate expense head (e.g., “Discounts Allowed”), creating a reporting variance.

3. Debit Notes

• Supplementary invoices or debit notes issued to collect additional charges (e.g., late fees or price revisions) increase turnover under GST in the month issued, whereas Income Tax might record them in a different accounting period.

4. Export Transactions

• GST Law: Exports are reported based on the invoice date or shipping bill date.
• Income Tax Law: Revenue recognition may depend on the transfer of risks and rewards (e.g., FOB vs. CIF contracts) or foreign exchange conversion rate differences on the transaction date.

5. Non-Taxable, Exempted, or Out-of-Scope Receipts

• Certain income sources like interest income, rental income from residential property, dividend income, or sale of fixed assets are included in Income Tax (under other heads or P&L), but are either exempt, non-GST supplies, or reported differently in GST returns.

6. Bookkeeping & Clerical Errors

• Manual data entry errors, duplicate invoice entries, or incorrect GSTIN tagging during monthly return filing are frequent causes of avoidable mismatches.

Before submitting your annual Income Tax Return:

1. Aggregate your total turnover across all 12 months of GSTR-1.
2. Cross-check this figure with the gross receipts in your audited or finalized Profit & Loss Account.
3. Download and cross-verify your Annual Information Statement (AIS) and Form 26AS.
4. Draft a formal GST vs. ITR Reconciliation Statement for your records before finalizing figures.

2.  Important Judgements:

 (i) Mechanical Invocation of Section 74 without Foundational Facts Invalidates Extended Limitation: SC

STAY / SET ASIDE OF SHOW CAUSE NOTICE / EXTENDED PERIOD OF LIMITATION: Merely reciting statutory terms such as “fraud,” “wilful misstatement,” or “suppression of facts” in a Show Cause Notice (SCN) does not automatically empower the Department to invoke the extended five-year limitation period under Section 74 of the CGST Act, 2017. The SCN itself must clearly set out the underlying foundational facts demonstrating deliberate intent, concealment, or misrepresentation. In the Supreme Court of India (Civil Appellate Jurisdiction) [Civil Appeal No. 12020 of 2026](Arising out of SLP (C) No. 16859 of 2026)

M/s Tata Steel Limited … Appellant versus Union of India & Ors. … Respondents (Decided on August 25, 2026)

Held

1. Foundational Facts Mandatory in SCN:

The Supreme Court observed that extended limitation under Section 74 is an exception to the normal period provided under Section 73. When grave allegations like fraud, wilful misstatement, or suppression are levied, the Department cannot give mere lip service to statutory provisions. The SCN must reveal the factual foundation indicating application of mind. Broad, vague statements alleging lack of documentary evidence fail to justify invoking Section 74.

1. Defects Cannot Be Cured Post-Facto:

An SCN lacking basic foundational facts cannot be cured or supplemented later through an adjudication order, counter-affidavit, or court submissions.

1. Computation of Limitation:

The timeline under Section 73(10) governs the adjudication order, while Section 73(2) mandates that the SCN be issued at least 3 months prior. Having failed to issue the SCN within the extended Section 73 deadline (February 28, 2025), the notice dated June 13, 2025 was patently time-barred.

1. Relief & Liberty:

The impugned SCN dated June 13, 2025 and the consequential Order-in-Original dated December 26, 2025 were set aside. However, as the extended five-year limitation under Section 74 had not lapsed for the relevant financial years, liberty was granted to the Revenue to initiate fresh proceedings strictly in accordance with law, provided the new notice details the requisite foundational facts and the final order is passed on or before February 28, 2027.

(ii) Composition Benefit Ceases Automatically on Crossing Threshold; Cum-Tax Benefit Under Rule 35 Mandatory for Differential Tax: GSTAT

COMPOSITION SCHEME / AGGREGATE TURNOVER / CUM-TAX VALUE: The option to pay tax under the Composition Scheme under Section 10(3) of the CGST/TGST Act, 2017 automatically ceases from the exact date a registered person’s aggregate turnover exceeds the statutory limit of ₹1.50 crore. For supplies made on or after the date of crossing the threshold, differential tax under the regular scheme must be recomputed by treating the total consideration/invoice value as inclusive of GST (cum-tax value) under Rule 35, as composition taxpayers are legally prohibited from collecting tax separately.

In the Goods and Services Tax Appellate Tribunal  (State Bench: Hyderabad) [Appeal No. APL/26/HYD/2026] M/s Parameshwara Bricks … Appellant  versus State Tax Officer & Ors. … Respondents

1. Automatic Statutory Withdrawal:

The Tribunal affirmed that the composition option lapses automatically on the date the aggregate turnover crosses ₹1.50 crore. From that specific date onward, the taxpayer becomes liable to pay tax at normal applicable rates under the regular scheme.

2. No Retrospective Re-assessment of Pre-Threshold Turnover:

Supplies made prior to crossing the aggregate turnover limit remain validly covered under Section 10. The determination of differential tax (originally quantified by authorities at ₹1,27,250 for FY 2020-21 and ₹6,43,856 for FY 2021-22) must be restricted strictly to supplies made post-threshold.

3. Mandatory Application of Cum-Tax Benefit (Rule 35):

Because the appellant could not have collected tax separately from customers while operating under the composition framework, adding regular GST on top of the invoice value leads to double taxation and artificial enhancement of tax liability. The Tribunal directed the Proper Officer to apply the cum-tax principle under Rule 35 (Tax Amount = (Value inclusive of tax x Tax rate) / (100 + Tax rate)) to determine the revised regular tax liability on post-cessation sales.

4. Consequential Relief on Interest and Penalty:

The Proper Officer was directed to recompute the interest under Section 50 and penalty under Section 122 correspondingly based on the reduced differential tax worked out after applying Rule 35.

(iii) M/s. Santhome Latex Enterprises v. Commissioner of CGST, Thiruvananthapuram

• Court / Forum:GST Appellate Tribunal (GSTAT), Thiruvananthapuram Bench (Division Bench, Court No. I)
• Appeal No.:APL/21/TVP/2026
• Final Order No.:04/TVP/KERALA/2026
• Date of Order: August 21, 2026 (Reported: August 22, 2026)
• Bench: Subramanya V. Rayaprol (Judicial Member) and Mr. Ramamoorthi Sriram (Technical Member)
• Counsel: Unnikrishnan M, CA (for Appellant) | Mr. Suresh S, AR (for Revenue)
• Statutory Provisions:Sections 73, 74, 16(2), and 42(1) of the Central Goods and Services Tax (CGST) Act, 2017; CBIC Instruction No. 05/2023-GST.

1. Executive Summary

The GST Appellate Tribunal (GSTAT), Thiruvananthapuram Bench, delivered a landmark ruling on the limits of extended limitation under Section 74 of the CGST Act. The Tribunal held that mere availment of excess or ineligible Input Tax Credit (ITC) reflected in return reconciliation variances does not automatically amount to “suppression of facts” or fraud.The Department cannot issue template-based Show Cause Notices (SCNs) invoking extended limitation without specific, material evidence proving deliberate intent to evade tax.

2. Case Overview & Procedural History

A. Background & Issuance of SCN

The Revenue conducted an audit/desk verification comparing the taxpayer’s return data across statutory filings. Discrepancies were noted between the ITC figures reflected in GSTR-2A / Table 8 and the credit claimed in GSTR-3B and audited annual statements under GSTR-9C.

Relying on these variances, the Department issued a Show Cause Notice (SCN) under Section 74 of the CGST Act, 2017, alleging that the taxpayer availed ineligible ITC in contravention of Sections 16(2) and 42(1).The Department asserted that taking unverified or excess ITC automatically constitutes a “suppression of facts” with mala fide intent to evade tax, thereby invoking extended limitation and stringent penalties.

B. Adjudication & First Appeal

• Adjudicating Authority: The original Adjudicating Authority dropped the demand raised under Section 74. It was found that the taxpayer had uploaded self-certified invoice-wise reconciliation statements via Form GSTR-9C along with the Annual Return, disproving any secretiveness or suppression.
• Joint Commissioner (Appeals): On an appeal filed by the Revenue, the Joint Commissioner (Appeals) reversed the Adjudicating Authority’s order and restored the demand. The appellate authority based its decision on a new ground absent from the SCN—alleging that the taxpayer had failed to respond to the initial audit queries and the Final Audit Report.

3. Key Issues Before the Tribunal

1. Whether a variance between GSTR-2A/Table 8 and GSTR-3B/GSTR-9C automatically triggers extended limitation under Section 74 without concrete proof of fraud, willful misstatement, or suppression of facts.
2. Whether a failure to reply to audit queries constitutes “suppression of facts” under Section 74.
3. Whether the First Appellate Authority violated principles of natural justice by upholding a demand on grounds not alleged in the original SCN.

4. Judgment & Legal Rationale

I. Reconciliation Variance Is Not Automatic Fraud or Suppression

The Tribunal held that a mere statutory transgression of Section 16(2) or Section 42(1) does not inherently satisfy the requirements of Section 74.

“Every act of transgression of Section 16(2) / 42(1) of the CGST Act cannot be termed as a violation inviting proceedings under Section 74 … unless clear and categorical evidence has been adduced to the effect that the said transgression was the result of fraud, or willful-misstatement or suppression of facts.”

II. Onus of Proof & Invalidity of Bald Assertions

The Tribunal noted that the SCN relied on vague, template-based statements alleging mala fide intent without presenting material evidence. The onus lies squarely on the Department to prove that the taxpayer knew the credit was ineligible and nonetheless claimed it contumaciously. Unverified or disputed ITC claims fall under regular limitation provisions under Section 73, not Section 74.

III. Binding Nature of CBIC Instruction No. 05/2023-GST

The Bench highlighted CBIC Instruction No. 05/2023-GST (dated 13.12.2023), which mandates that Section 74(1) must only be invoked when investigation yields material evidence of fraud or suppression, and such evidence must be explicitly detailed in the SCN.The Department ignored its own binding instructions by issuing an SCN based solely on routine return mismatches.

IV. Non-Reply to Audit Enquiries Does Not Equal Suppression

The Tribunal rejected the argument that failing to reply to audit notices amounts to suppression under Section 74. Because the taxpayer had already submitted invoice-wise reconciliations via public statutory filings (GSTR-9 and GSTR-9C), the relevant facts were fully disclosed to the tax authorities.

V. Breach of Natural Justice (Travel Beyond SCN Scope)

The Tribunal observed that the Joint Commissioner (Appeals) committed a fatal procedural flaw by confirming the demand on grounds not raised in the SCN (the alleged non-compliance with audit queries). An appellate authority cannot construct a new case for the Revenue that was not offered to the taxpayer to defend during the original proceedings.

5. Final Order & Disposition

• Order: The GSTAT set aside the Order-in-Appeal passed by the Joint Commissioner (Appeals).
• Relief: The appeal filed by the Appellant taxpayer was allowed in full with all consequential legal and financial reliefs.

6. Legal Impact & Takeaways for Practice

                       +———————————–+                     |   SCN Issued Under Section 74     |                       +—————–+—————–+                                          |              Is there material evidence of fraud/suppression?                                   |                 +————————-+————————-+                 |                                                   |              [ YES ]                                             [ NO ]                 |                                                   |      +———-v———-+                          +———-v———-+      | Section 74 Valid;   |                         | Section 74 Invoked  |      | Extended Limitation |                         | Illegally; SCN Void |      | Applies.            |                         | Under Section 73.   |      +———————+                          +———————+

1. Reconciliation Discrepancies Mens Rea: Differences between GSTR-2A/Table 8 and GSTR-3B are routine commercial or timing discrepancies; they do not establish an intention to evade tax.
2. GSTR-9C as Complete Disclosure: Complete disclosures in GSTR-9 and self-certified GSTR-9C filings serve as effective evidence against departmental allegations of hidden facts or suppression.
3. Strict Bounds of Show Cause Notices: Tax authorities cannot sustain adverse orders on grounds outside the four corners of the original Show Cause Notice.

(iv) GSTAT: Transporting Goods Without Mandatory E-Way Bill Evidences Intent to Evade Tax; Subsequent Generation Invalid

• Reporting Date: August 24, 2026
• Forum:GST Appellate Tribunal (GSTAT)
• Statutory Provision:Section 129(3) of the CGST Act, 2017

Key Legal Principles & Findings:

• Non-compliance & Tax Evasion: Transporting goods without a mandatory E-Way Bill enables potential record manipulation; therefore, subsequent generation or post-interception production of an E-Way Bill does not cure the initial statutory violation or negate the inference of tax evasion.
• Reversal of First Appellate Order: The First Appellate Authority erred in dropping penalty proceedings on the ground that accompanying documents lacked discrepancies and an E-Way Bill was produced later.

Outcome: Considering the geographical proximity of the origin and destination alongside the complete absence of an E-Way Bill during transit, GSTAT confirmed the clear intent to evade tax, set aside the First Appellate Authority’s order, and restored the Proper Officer’s demand under Section 129(3) imposing tax and penalty.

(v) Automatic Cessation of Composition Scheme Upon Exceeding Aggregate Turnover Threshold & Mandatory Cum-Tax Adjustment

• Reporting Date:August 24, 2026
• Forum:GSTAT (Hyderabad Bench)
• Statutory Provisions: Section 10(3) of the CGST Act, 2017; Rule 6(2) and Rule 35 of the CGST Rules, 2017

Key Legal Principles & Findings:

• Automatic Cessation of Option:The option to pay tax under the Composition Scheme under Section 10(3) automatically ceases by force of law on the exact date a registered person’s aggregate turnover exceeds the statutory limit (e.g., ₹1.50 Crore).From that date forward, the taxpayer is legally obligated to pay GST under regular rates.
• Application of Cum-Tax Principle (Rule 35):Because composition taxpayers are legally prohibited from collecting tax separately from buyers or claiming Input Tax Credit (ITC), invoices issued without a distinct tax component represent the total consideration received.
• Benefit Granted Without Explicit Claim: GSTAT held that when recomputing differential tax for the post-cessation period, the proper officer must apply the cum-tax formula under Rule 35 to extract the tax component from declared invoice values, even if the taxpayer had not specifically claimed the cum-tax benefit before.

Outcome: Re-computation of tax liability, interest, and penalty was ordered after back-calculating the tax using the cum-tax principle under Rule 35.

(vi) GSTAT: Availing Ineligible Self-Assessed ITC Without Verification Does Not Automatically Constitute Fraud or Suppression

• Reporting Date:August 26, 2026
• Forum:GST Appellate Tribunal (GSTAT)
• Statutory Provisions: Section 73 & Section 74 of the CGST Act, 2017

Key Legal Principles & Findings:

• Distinction Between Mere Ineligibility and Intentional Suppression: Merely claiming ineligible or excess Input Tax Credit (ITC) in self-assessed returns does not automatically satisfy the threshold of “suppression of facts” or “willful misstatement” required to trigger extended limitation under Section 74.
• Burden of Proof on Revenue: The Department must establish positive evidence demonstrating deliberate intent to evade payment of tax rather than relying on template-based assertions of non-verification or return discrepancies.

Outcome: The tribunal restricted the application of Section 74 in cases lacking deliberate intent or fraud, reiterating that unverified or wrongful ITC claims alone fall within regular limitation provisions under Section 73.

Disclaimer:

This publication contains information for general guidance only. It is not intended to address the circumstances of any particular individual or entity. Although the best of endeavour has been made to provide the provisions in a simpler and accurate form, there is no substitute to detailed research with regard to the specific situation of a particular individual or entity. We do not accept any responsibility for loss incurred by any person for acting or refraining to act as a result of any matter in this publication.