GSTR-1 and GSTR-3B mismatch due to delayed customer payments must be adjudicated under Section 73.

By | July 6, 2026
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GSTR-1 and GSTR-3B mismatch due to delayed customer payments must be adjudicated under Section 73.

Issue

Whether the tax authority was justified in invoking the extended period of limitation and imposing a 100% penalty under Section 74 for an outward supply mismatch between GSTR-1 and GSTR-3B, or if the matter should be examined under Section 73 to extend waiver benefits under Section 128A.

Facts

  • Registration: The petitioner is a registered taxpayer under the CGST/TNGST Act.

  • Return Discrepancy: The petitioner correctly disclosed outward supplies in Form GSTR-1 for March 2018 and the financial year 2018-19, but failed to fully discharge the corresponding output tax liability through Form GSTR-3B. Returns for several subsequent months were either delayed or unfiled.

  • Reason for Delay: The petitioner stated that the short-payment and delayed filing occurred because customers had not cleared their invoices, asserting there was no fraudulent intent to evade taxes, and that the tax was paid as soon as receipts were cleared.

  • Show Cause Notices: The tax authority issued three notices:

    • An SCN dated June 30, 2022, under Section 74 (alleging fraud/suppression) for the GSTR-1 vs. GSTR-3B mismatch period (March 2018 and FY 2018-19).

    • An SCN dated August 4, 2022, under Section 73 (normal period) covering April 2019 to March 2021.

    • A separate SCN alleging ineligible Input Tax Credit (ITC) for July 2017 to March 2018.

  • Adjudication: The adjudicating authority issued an Order-in-Original (OIO) dated May 31, 2023, confirming the demands and imposing a 100% penalty under Section 74 for the mismatch period.

  • Writ Petition: The petitioner challenged the OIO, seeking relief and the application of softer demand provisions.

Decision

  • Procedural Validity: The High Court initially observed that the absolute failure to pay taxes declared in GSTR-1 by the GSTR-3B due date technically justified administrative action.

  • Relevance of New Provisions: However, the court highlighted that the subsequent insertion of Section 128A (conditional waiver of interest/penalty) and the corresponding GST Council deliberations clarify that such reporting glitches and short payments against GSTR-1 should ideally be covered under Section 73.

  • Remand Order: To grant the petitioner a fair opportunity to avail himself of the statutory waiver benefits intended for non-fraudulent defaults, the High Court quashed the OIO.

  • Directions: The court remanded the matter back to the tax authority for a fresh adjudication strictly under the purview of Section 73.

Key Takeaways

  • GSTR-1 vs GSTR-3B Mismatch is Not Automatic Fraud: Merely declaring a liability in GSTR-1 and failing to pay it on time in GSTR-3B due to commercial hardships (like delayed customer payments) does not automatically equate to fraud or suppression under Section 74.

  • Legislative Intent Controls Classification: New amnesty and relief provisions like Section 128A guide courts to look at the substance of a dispute. If a transaction lacks an intent to evade tax, it must be adjudicated under Section 73.

  • Preservation of Waiver Benefits: Remanding a case from Section 74 to Section 73 effectively reduces harsh 100% penalties and opens up statutory avenues for the taxpayer to claim full waivers on interest and penalties.

HIGH COURT OF MADRAS
Zyvana Integrated Services (P.) Ltd.
v.
Additional Commissioner of GST and Central Excise
C. Saravanan, J.
W.P. No. 10854 of 2025
W.M.P. Nos. 12232 & 12236 of 2025
JUNE  8, 2026
T.Ramesh for the Petitioner. S.M. Deenadayalan, Senior Standing Counsel for the Respondent.
ORDER
1. In this writ petition, the petitioner has challenged the Impugned Orderin-Original Nos.19 to 21/2023-GST-ADC dated 31.05.2023. By the Impugned Orders, the demands proposed in three Show Cause Notices dated 30.06.2022, 04.08.2022 and 12.12.2022 have been confirmed. Details of the demand confirmed are as under:
Sl.No. Show Cause Notice Issued by Issue Involved Period
1. Dt. 30.06.2022 issued under Section 74 Joint Commissioner of GST and Central Excise, Chennai South Commissionerate Difference b/w Form GSTR-1 and Form GSTR-3B March 2018 (2017-18) April 2018 – March 2019 (2018-19)
2. Dt. 04.08.2022 issued under Section 73 Additional Director General of Goods and Services Tax Intelligence Chennai Zonal Unit Difference b/w Form GSTR-1 and Form GSTR-3B April 2019 -March 2021
3. Dt. 12.12.2022 issued under Section 73 Superintendent of Central Tax, Vadapalani IV Range Wrong availment of ineligible ITC July 2017- March 2018

 

2. In this writ petition, the petitioner is aggrieved by the impugned order insofar as it confirms the imposition of 100% penalty under Section 74 of the respective GST enactment, in response to Show Cause Notice dated 30.06.2022, the demand proposed therein was confirmed by the Impugned Order-in-Original Nos.19 to 21/2023-GST-ADC dated 31.05.2023.
3. The Impugned Order-in-Original Nos.19 to 21/2023-GST-ADC dated 31.05.2023 have been passed on account of the alleged failure on the part of the petitioner to pay the tax output supply declared in GSTR-1 and on account of the petitioner’s failure to file the monthly returns in GSTR-3B for the above tax period. It is submitted that the petitioner did not declare a portion of the output supply in GSTR-3B, as several customers had not paid the amounts due to the petitioner on the invoices raised for the supply made by the petitioner as a supplier. It is submitted that the petitioner had adequately declared the outward supplies in GSTR-1 and that there was no intention to evade payment of tax.
4. It is submitted that the delay in filing GSTR-3B was purely on account of difficulties faced by the petitioner and such delay cannot amount to suppression of facts to invoke the jurisdiction under Section 74 for imposing a mandatory penalty.
5. Apart from this, it is submitted that as and when payments were received from customers, the petitioner discharged the corresponding tax liability, which is also not disputed.
6. In short, the learned counsel for the petitioner submits that once the tax payable towards the outward supplies were declared in GSTR-1, mere failure to make a corresponding declaration in GSTR-3B would not, by itself, amount to suppression of facts to evade tax within the meaning of Section 74 of the respective GST enactments. It is further submitted that the tax amount has already been fully paid on various dates, which has also been acknowledged in the impugned order.
7. Apart from this, the learned counsel for the petitioner further submitted that for the identical default committed by the petitioner for the succeeding period, the respondent had invoked the machinery under Section 73. Therefore, this Court may exercise its discretion under Section 75(2) by treating the proceedings under Section 73.
8. Therefore, the learned counsel for the petitioner submitted that once show cause notice has been issued in time for the succeeding period under Section 73 of the respective GST enactments, the invocation of Section 74 cannot be countenanced for the earlier period. Consequently, the proceedings under Section 79 are liable to be interfered with.
9. On the other hand, the learned Government Advocate for the respondent submits that, insofar as the imposition of penalty is concerned, paragraph 26 of the impugned order clearly justifies the same. The relevant portion of the impugned order is reproduced below:-
” The term ” suppression” is specifically explained to mean non-declaration of facts or information which a taxable person is statutorily required to declare in the return, statement, report or any other document furnished under the Act or the rules made there under, or failure to furnish any information on being asked for, in writing, by the Proper Officer. Whenever tax is not paid or short paid or credit wrongly availed or utilized or erroneously refunded with an intent to evade tax by way of fraud, wilful misstatement, suppression of facts, the Proper Officer shall issue a notice for such amount along with interest as per Section 50 and penalty equivalent to the amount of tax specified in notice. Once it has been conclusively held that tax has not been paid with intention to evade by suppressing facts, penalty equal to tax not paid would follow as a natural corollary. The above discussions and findings prove beyond any doubt that the Taxpayer being well aware of their tax liabilities, collected rental amounts along with GST from their client but chose not to remit the same. They further did not file GST Returns in time thereby suppressing the fact of receipt of taxable income, which surfaced only owing to the investigation conducted by the department.”
10. It is therefore submitted that the order imposing the penalty under Section 74 of the respective GST enactments on the petitioner cannot be found fault with.
11. I have considered the arguments advanced by the learned counsel for the petitioner and the learned Government Advocate for the respondent.
12. The invocation of machinery under Section 74 in the given facts and circumstances of the case cannot be interfered with in this proceeding, as there are no procedural irregularities committed by the respondent while passing the Impugned Order-in-Original Nos.19 to 21/2023-GST-ADC dated 31.05.2023.
13. The dispute pertains to the period between March 2018 to March 2021. The liability to pay tax under the scheme had to be paid by the due date in the following month of supply of services or, as the case may be. Having correctly declared the value of outward supply in GSTR-1, it was incumbent upon the petitioner to have paid the tax for the corresponding month or the quarter, as the case may be, in Form GSTR-3B. Therefore, there is no reason for interfering with the impugned order.
14. However, it is noticed that Section 128A has been inserted by the Finance Act No.2 of 2024, whereby amnesty has been given to registered persons against whom the machinery under Section 73 was invoked. Notifications have also been issued to implement the scheme under Section 128A of the Act. At the same time, this amnesty scheme is not available to persons against whom the machinery under Section 74 has been invoked.
15. The deliberations that preceded the incorporation of Section 128A into the Act before the GST Council seem to indicate that there were several glitches which had resulted in the non-filing of returns on time. Furthermore, amnesty has been granted in cases involving the short payment of tax compared to the admitted tax liability in GSTR-1.
16. A perusal of the deliberations of the GST Council indicates that the case of the petitioner can be examined under the purview of Section 73 of the Act. Therefore, the impugned order is quashed, and the case is remitted back to the respondent to redo the exercise afresh.
17. Accordingly, this Writ Petition stands partly allowed. Consequently, connected miscellaneous petitions are closed. No costs.