First Ever GSTAT Order (11 February 2026): Sterling & Wilson Wins Relief in GSTR-1 vs GSTR-3B Mismatch Case

Date of Order: 11 February 2026
Case: M/s Sterling & Wilson Pvt. Ltd. v. Commissioner, Odisha (APL/1/PB/2026)
Bench: GST Appellate Tribunal (GSTAT), Principal Bench, Delhi

The GST Appellate Tribunal (Principal Bench, Delhi) has delivered its first landmark order, and it has immediately become one of the most important rulings in GST litigation.

The decision provides major clarity on:

• GSTR-1 vs GSTR-3B mismatch disputes
• Section 74 vs Section 73 of CGST Act
• Scope of Section 75(2)
• Powers of Appellate Authorities
• Automated mismatch-based GST demands

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Quick Summary (For Fast Readers)

• Mere GSTR-1 vs GSTR-3B mismatch is not proof of tax evasion.
• If fraud/suppression is not established, Section 74 cannot survive.
• Under Section 75(2), notice is deemed to be under Section 73.
• Appellate Authority cannot itself re-quantify demand under Section 73.
• Proper Officer must conduct fresh adjudication.
• 30 days granted for reconciliation and corrections.

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Background: GSTR-1 vs GSTR-3B Mismatch (FY 2018-19)

For FY 2018-19, the department noticed that outward supplies reported in GSTR-1 were higher than tax discharged in GSTR-3B.

Based purely on this system-generated mismatch, proceedings were initiated under Section 74 of the CGST Act, alleging suppression and wilful misstatement.

The demand raised included:

• ₹27,06,634 (CGST + SGST)
• Interest
• Equal penalty
• Total exposure approx. ₹65 lakh

On first appeal, fraud was not proved. However, the Appellate Authority converted the matter into a Section 73 case and still confirmed the demand.

The assessee then approached GSTAT.

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Assessee’s Defence: Genuine Reconciliation Differences

The company explained that mismatch arose due to:

• Credit notes and debit notes
• Advance adjustments
• Timing differences
• Technical issues in early GST implementation
• Covid-era compliance disruptions

All transactions were reflected in:

• Audited Books of Accounts
• GSTR-9 (Annual Return)
• GSTR-9C (Reconciliation Statement)

The core argument was clear:

System-generated mismatch cannot automatically amount to suppression without proper verification.

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Core Legal Issue: Section 74 vs Section 73 and Section 75(2)

1. What Happens When Section 74 Fails?

Section 74 applies only in cases involving fraud, wilful misstatement or suppression.

GSTAT held:

• Once fraud is not established, Section 74 proceedings cannot continue.
• By virtue of Section 75(2), the notice must be treated as issued under Section 73.

2. Can Appellate Authority Confirm Demand Under Section 73?

This was the most significant clarification.

The Tribunal ruled:

• Only the Proper Officer can determine tax liability under Section 73.
• Appellate Authority cannot independently re-quantify demand.
• Matter must be remanded for fresh adjudication.

This limits excessive confirmation of demands at appellate stage.

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Important Observation: Mismatch ≠ Tax Evasion

A simple mismatch between GSTR-1 and GSTR-3B does not automatically establish tax evasion.

Where reconciliation is supported by:

• Credit/debit notes
• Advance adjustments
• Audited financials
• Annual returns

The department must conduct detailed verification rather than rely on automated differences.

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30 Days Relief for Reconciliation

Recognizing practical challenges of early GST years and Covid disruptions, GSTAT granted:

• 30 days to submit detailed reconciliation
• Opportunity to make permissible amendments
• Direction to Proper Officer to pass fresh speaking order

This demonstrates a pragmatic, business-sensitive judicial approach.

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Why This First GSTAT Order Is Landmark

• First ruling after GSTAT constitution
• Clarifies Section 74 vs 73 interplay
• Defines scope of Section 75(2)
• Restricts appellate overreach
• Strengthens taxpayer procedural safeguards
• Will guide nationwide GST litigation

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Practical Litigation Strategy After This Judgment

If You Receive Section 74 Notice:

• Challenge invocation of fraud
• Demand specific evidence of suppression
• Submit reconciliation in structured tabular format
• Cite Sterling & Wilson GSTAT Order (APL/1/PB/2026)

For Ongoing Appeals:

• Argue automatic shift to Section 73 via Section 75(2)
• Seek remand instead of confirmation
• Highlight absence of mens rea

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Frequently Asked Questions (FAQ)

Is GSTR-1 vs GSTR-3B mismatch equal to tax evasion?

No. GSTAT clarified that mismatch alone is not conclusive proof of evasion.

Can Section 74 notice convert into Section 73?

Yes, under Section 75(2), but fresh adjudication must be done by Proper Officer.

Is this order binding across India?

It is highly persuasive and will influence GSTAT benches and litigation strategy nationwide.

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Conclusion: A Turning Point in GST Jurisprudence

The first GSTAT order in Sterling & Wilson case reinforces statutory discipline, protects taxpayers from mechanical mismatch-based demands, and ensures that fraud provisions are not casually invoked.

This judgment will significantly shape the future of GST litigation in India.

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Author

CA Manthan Gandhi
GST Compliance, Litigation & Advisory Specialist
Founder – Your CA Guide
www.yourcaguide.com

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Disclaimer: This article is for educational purposes only and does not constitute professional advice.