GST Demand Over Mere Mismatch Between ITC Claimed And Supplier-Reported Credit Unsustainable: GSTAT Bengaluru

The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru, has ruled that tax authorities cannot confirm a demand for reversal of input tax credit (ITC) merely because the credit claimed in GST returns is higher than the credit reflected in statements generated from suppliers' returns.

It held that officers must examine the supporting invoices and verify the statutory conditions before disallowing credit.

A bench of Judicial Member Prabhakaran P.M. and Technical Member (State) Ravi Jesuraj S. observed, “A difference between Form GSTR-2A and Form GSTR-3B is where the enquiry starts. It is not where the enquiry ends. The officer must call for the explanation, examine the material and record a finding.”

The tribunal set aside orders confirming a GST demand of ₹18.27 lakh against a civil contractor executing works for the Public Works Department in Karnataka. It remitted the matter to the tax officer for fresh adjudication.

The contractor had claimed ITC of ₹28.02 lakh in his GST returns for 2021-22, while the statement generated from his suppliers' returns reflected credit of ₹17.30 lakh. The authorities treated the difference of ₹10.72 lakh as excess credit and raised a demand, including interest and penalty.

The contractor argued that the authorities had confirmed the demand without examining the supporting invoices and other documents. He also contended that interest could not be levied without establishing that the disputed credit had been utilised. The department argued that he had failed to respond to several notices and discharge his burden of proving ITC eligibility.

The tribunal held that the first appellate authority could not dismiss the appeal merely because the contractor failed to appear. It also found that the tax officer had not followed the applicable GST circulars, which require invoice-wise verification of credit mismatches for the relevant period.

For April to December 2021, officers were required to verify the invoices, receipt of goods or services, payment to suppliers and whether the corresponding tax had been paid to the government. The officer also had to calculate the five per cent additional ITC limit under Rule 36(4) month by month, applying the cumulative calculation for April to June 2021.

The tribunal clarified that the burden of proving ITC eligibility remained on the taxpayer under Section 155 of the CGST Act. Referring to the Supreme Court's decision in State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd., it observed that invoices and proof of payment alone may not establish the genuineness of a transaction.

On interest, the tribunal held that Section 50(3), read with Rule 88B(3), permits levy only when ITC has been both wrongly availed and utilised. Since the original order did not establish utilisation by examining the electronic credit ledger, the interest demand could not be sustained. The penalty would also require fresh determination based on the tax ultimately found payable.

The tribunal restored the show cause notice to the tax officer for fresh adjudication. It directed the contractor to submit an invoice-wise reconciliation and supporting documents within eight weeks of receiving the order.

The officer must verify the claim invoice by invoice, provide a personal hearing and pass a reasoned order. The tribunal clarified that it had expressed no opinion on the eligibility of individual invoices or the final tax liability.

For Appellant: A. Shiva Rao, Chartered Accountant

For Respondent: Jaideep Gaonkar, Deputy Commissioner of Commercial Taxes