Mismatch In ITC Claim And Supplier Credit Alone Cannot Prove Wrongful ITC : GSTAT Bengaluru

The GST Appellate Tribunal, Bengaluru Bench, has held that a difference between the input tax credit (ITC) claimed by a taxpayer in its GST return and the credit reflected in the supplier-linked GSTR-2A statement cannot, by itself, prove that the ITC was wrongly availed.

It observed that a mismatch between GSTR-2A and GSTR-3B, by itself, cannot establish that Input Tax Credit was wrongly claimed.

The Division Bench of Judicial Member Prabhakaran P.M. and Technical Member (State) Ravi Jesuraj S. directed the adjudicating authority to verify the reconciliation, invoices, books of account, and electronic credit ledger before deciding the ITC dispute.

The dispute related to FY 2019-20. The tax authorities had initially noticed an alleged excess ITC of Rs. 82,701 under the IGST head.

However, the final order confirmed a demand of Rs. 51,174 under the CGST and SGST heads, along with interest of Rs. 40,708 and penalty of Rs. 20,000.

The Tribunal noted that the primary reconciliation showed an excess of Rs. 82,701 under IGST, while the CGST and SGST figures reflected a shortfall of Rs. 1,745 each. Despite this, the final demand was raised under CGST and SGST on the basis of a separate computation.

It found that the authorities had not explained the difference between the two computations or properly examined the reconciliation submitted by the taxpayer. It also noted that the CGST and SGST liability ultimately confirmed had not been proposed in the original show-cause notice.

The Bench observed that a difference between GSTR-2A and GSTR-3B may justify verification, but cannot, by itself, be treated as conclusive proof that ITC was wrongly availed. It said the underlying transactions and supporting documents must be examined before determining the actual ITC liability.

"A difference between GSTR-2A and GSTR-3B may justify verification. It cannot, without more, be treated as conclusive proof that ITC has been wrongly availed — not on the facts before us", the bench said.

The Tribunal further noted that Section 16(2)(aa), which gives statutory recognition to matching requirements, was introduced only from January 1, 2022 and was therefore not applicable to FY 2019-20. It also directed the authorities to apply the relevant CBIC circulars separately for the periods to which they apply.

"On proper verification, the authorities below have not established that the condition in Section 16(2)(c) was breached by the Appellant. Section 16(2)(aa) has no application to Financial Year 2019-20", the Court said.

Holding that the orders below lacked adequate reasons and did not properly consider the reconciliation, the Tribunal set aside both the adjudication order and the first appellate order.

The matter was remanded for fresh adjudication, with directions to reconcile the conflicting computations, conduct invoice-wise and supplier-wise verification where necessary, examine the relevant books and records, and determine whether any statutory condition for availing ITC was actually breached.

The Tribunal also directed that the fresh adjudication must remain confined to the grounds and tax heads specified in the original show-cause notice and cannot result in enhancement of the demand.

The taxpayer was also to be given an effective opportunity to submit documents and a personal hearing.

For the Appellant: Prashant Dokania, Chartered Accountant

For the Respondent: Dr Ramya, Deputy Commissioner, Departmental Representative