The Goods and Services Tax Appellate Tribunal (GSTAT), Chennai Bench, has held that a dispute concerning input tax credit (ITC) not reflected in GSTR-2A involves questions of law where its resolution requires interpreting statutory conditions, the recipient’s burden of proof, and the effect of departmental circulars. Such an appeal must be heard by a Division Bench even when the disputed amount is below ₹50 lakh.
The Bench of Praveen Kumar Jain (Judicial Member) and Shaik Khader Rahman (Technical Member) found that adjudicating the appeal necessarily required interpretation of Section 16(2)(c), Rule 36(4), the two departmental circulars namely Circular No. 183/15/2022-GST and Circular No. 193/05/2023-GST dated July 17, 2023, and their application to ITC not reflected in GSTR-2A.
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The dispute relates to the period from July 2017 to March 2022. The department had demanded ITC availed in GSTR-3B but not reflected in GSTR-2A, alleging a contravention of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017.
The adjudicating authority confirmed a demand of ₹44,33,958 under Section 73, along with interest and penalty.
However, the first appellate authority, through an order dated December 3, 2024, allowed ITC of ₹35,44,484 and sustained the remaining demand. Of the credit allowed, ₹35,31,300 was accepted on the strength of invoices and proof of payment, while ₹13,184 was allowed under Rule 36(4) of the CGST Rules, 2017.
The department approached the Tribunal under Section 112(3), seeking restoration of the demand of ₹35,44,484.
Since the disputed amount was below ₹50 lakh, the Tribunal first examined whether the appeal involved a question of law within the meaning of Section 109(8), having regard to the Principal Bench’s Office Order dated May 14, 2026.
The department argued that the taxpayer had not fulfilled the conditions prescribed under Section 16, Circular No. 183/15/2022-GST dated December 27, 2022, and Rule 36(4).
According to the department, ITC is a conditional statutory benefit. It contended that the taxpayer had failed to produce a certificate from the supplier or a chartered accountant confirming that the supplier had actually made the supplies and paid the corresponding tax to the government through its GSTR-3B return.
The department maintained that these issues raised questions of law requiring consideration by a Division Bench.
In its cross-objections, Dynamatic Technologies also submitted that the appeal involved questions of law, particularly concerning the interpretation of Section 16(2)(c).
The company argued that reflection of supplies in GSTR-2A was not a statutory condition before Section 16(2)(aa) came into effect on January 1, 2022. It further contended that a recipient should not be denied ITC because of a supplier’s default.
The taxpayer also challenged the scope of Rule 36(4), arguing that the rule could not extend beyond the parent Act and pointing out that Section 43A had never been brought into force.
Separately, it questioned the maintainability of the departmental appeal on the grounds that the review order lacked a valid Document Identification Number (DIN) and that the matter stood concluded under Section 128A.
The Tribunal expressly recorded these competing submissions only to determine the constitution of the Bench, without deciding their merits.
The Tribunal examined Section 109(8), which permits specified appeals involving amounts not exceeding ₹50 lakh to be heard by a single member, with the President’s approval and subject to the prescribed conditions, where they do not involve any question of law.
In all other cases, the provision requires the appeal to be heard jointly by one Judicial Member and one Technical Member.
Consequently, the monetary value of an appeal is not the sole consideration. An appeal below ₹50 lakh must still go before a Division Bench if its determination involves a question of law.
The Tribunal identified three sets of questions arising from the appeal and cross-objections.
The first concerns whether, on a proper interpretation of Section 16(2)(c), read with Sections 16(1), 41 and 155, a recipient possessing tax invoices and proof of payment to the supplier is entitled to ITC when the supplier’s payment of tax to the government has not been shown. This also raises the question of who bears the burden of proof.
The second concerns whether the requirements of Circular No. 183/15/2022-GST and Circular No. 193/05/2023-GST dated July 17, 2023, issued under Section 168, operate as conditions whose non-fulfilment disentitles a taxpayer to ITC. It also includes the scope and effect of Rule 36(4) in relation to Sections 16 and 43A.
The third concerns the maintainability of the Revenue’s appeal in light of the taxpayer’s objections under Section 128A and its challenge to the validity of the review order.
The Tribunal held that these questions could not be answered merely by verifying returns or documents. Each required a ruling on the meaning, scope and interaction of provisions of the Act and Rules, and the answers would directly affect the outcome of the appeal.
Although both sides had stated that questions of law were involved, the Bench independently examined the controversy before reaching its conclusion.
The Tribunal held that the appeal involved a question of law under Section 109(8) and must be heard by a Division Bench. The substantive questions concerning ITC entitlement, proof of supplier tax payment and the maintainability of the departmental appeal remain open for determination at the hearing on merits.
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