GST Demand Cannot Be Confirmed Based On System-Generated Discrepancies Without Reconciliation: GSTAT Lucknow
The GST Appellate Tribunal (GSTAT), Lucknow Bench, has held that confirming a GST demand based purely on system-generated discrepancies, without a detailed one-to-one financial reconciliation, violates the spirit of law and fairness.
The Division Bench of Judicial Member Santosh Kumar Srivastava and Technical Member Arvind Kumar made the observation while setting aside the original demand order and the first appellate order against Nitin Bakers Private Limited, involving ₹56.24 lakh in tax, interest, and penalty. the tribunal remanded the matter back to the authority for fresh determination.
The tribunal held:
“...we are of the view that the impugned order suffers from a total lack of factual verification and non-application of mind. Confirming a demand purely on system-generated discrepancies without conducting a detailed one-to-one financial reconciliation violates the spirit of law and fairness.”
The dispute arose from the company's GST returns for the financial year 2018–19. The tax department raised a demand of ₹56.24 lakh, including tax, interest and penalty, alleging excess Input Tax Credit (ITC) of about ₹2,590, a ₹25.93 lakh difference between GSTR-9 and GSTR-9C, and short reversal of ITC of about ₹51,757 under Rules 42 and 43.
Nitin Bakers argued that the authorities had compared figures across GST returns without accounting for ITC reversals already recorded in GSTR-3B. It maintained that the differences reflected accounting and reporting discrepancies, not unpaid tax.
The tribunal found that the authorities had failed to determine the company's actual net ITC position. They had treated the difference between GSTR-9 and GSTR-9C as unpaid tax without properly examining the company's explanation or reconciling its records.
It also found that the authorities had not checked whether the alleged excess ITC had already been reversed. In calculating the reversal required under Rules 42 and 43, the department had treated all ITC as common credit without properly identifying and separating the relevant credits.
The tribunal ruled that tax demands must be based on proper verification of financial records, not merely discrepancies between GST returns. It set aside both orders and remanded the matter to the adjudicating authority for fresh consideration and verification.
For Appellant: Advocate Dinesh Shukla
For Revenue: Ashutosh Mishra, AC, SGST