The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru Bench, has held that a difference between Input Tax Credit (ITC) reflected in Form GSTR-2A and the credit claimed in Form GSTR-3B may justify verification but cannot, by itself, be treated as conclusive proof of wrongful ITC availment.
The Bench of Prabhakaran P.M. (Judicial Member) and Ravi Jesuraj S. (Technical Member) set aside a GST demand after finding that the tax authorities had confirmed liability under the Central GST and State GST heads even though the show cause notice had proposed a demand exclusively under the Integrated GST head.
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The Tribunal remanded the matter to the adjudicating authority for fresh consideration, strictly within the scope of the original show cause notice. It clarified that the remand was not an opportunity for the department to reopen or expand the case.
The dispute concerned ITC claimed by the assessee for the financial year 2019-20. Scrutiny of the firm’s returns revealed a difference between the credit claimed in GSTR-3B and the credit appearing in the auto-generated GSTR-2A statement.
An intimation in Form GST ASMT-10, issued on March 25, 2024, alleged excess ITC of ₹82,701. The entire alleged excess was quantified under the IGST head. The working also showed that, under the CGST and SGST heads, the taxpayer had claimed ₹1,745 less credit under each head than the amount appearing in GSTR-2A.
The subsequent intimation in Form GST DRC-01A and the show cause notice dated May 29, 2024, continued to propose the entire liability under IGST. The show cause notice proposed tax of ₹82,701, interest of ₹62,026 and a penalty of ₹10,000, aggregating to ₹1,54,727.
However, the adjudicating authority’s final order did not confirm any IGST liability. Instead, it confirmed tax of ₹25,587 each under CGST and SGST, aggregating to ₹51,174.
Interest of ₹20,354 under each head and a penalty of ₹10,000 under each head were also imposed. The total liability confirmed against the taxpayer was ₹1,11,882.
The adjudicating authority arrived at the demand by relying upon a separate working described as “Excess of 2018-19 claimed in 2019-20”. The taxpayer disputed that calculation and maintained that the reconciliation submitted by it concerned only the IGST head.
The first appellate authority dismissed the taxpayer’s appeal. It held that the conditions prescribed under Section 16(2)(c) of the CGST Act had not been satisfied and that the taxpayer had failed to produce the certificates contemplated under CBIC Circular No. 183/15/2022-GST and Circular No. 193/05/2023-GST.
Before the GSTAT, the taxpayer contended that the entire proceedings suffered from a fundamental factual error. It argued that its reconciliation showed no excess credit under the CGST and SGST heads and that the demand had been shifted from IGST to CGST and SGST without notice, reasons or verification.
The taxpayer further submitted that the authorities had not examined the invoices, purchase register, books of account or electronic credit ledger before assuming that credit relating to financial year 2018-19 had been claimed during financial year 2019-20.
The Revenue defended the initiation of proceedings on the ground that the GSTR-2A and GSTR-3B mismatch constituted sufficient material for scrutiny. It also relied upon Section 16(2)(c), which requires the tax charged on a supply to have been paid to the Government.
During the hearing, however, the departmental representative acknowledged inconsistencies in the computation made in the order and requested that the matter be remanded for proper verification. The taxpayer did not object to the request.
The GSTAT observed that the initiation of proceedings under Section 73 could not be faulted merely because a discrepancy had been detected during scrutiny. A return mismatch could legitimately lead to verification, it said.
However, the Tribunal emphasised that the existence of a discrepancy was only the beginning of the enquiry and not its conclusion. The liability ultimately confirmed must be based on a proper examination of the taxpayer’s explanation and the underlying records.
“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,” the Tribunal observed.
The Bench found that the initial reconciliation disclosed an alleged excess of ₹82,701 under IGST and an under-claim of ₹1,745 each under CGST and SGST. Nevertheless, the final order abandoned the proposed IGST demand and confirmed ₹25,587 each under CGST and SGST on the basis of an entirely different calculation.
The adjudicating authority had not explained why the initial reconciliation was discarded, how the figures in the second calculation were derived or on what basis it was assumed that ITC relating to financial year 2018-19 had been claimed in financial year 2019-20, the Tribunal noted.
Tthe GSTAT found that the adjudication order incorrectly attributed the CGST and SGST calculations to the taxpayer’s reply. The taxpayer’s letter dated March 30, 2024, was expressly confined to reconciliation under the IGST head and did not contain any reconciliation of CGST or SGST figures.
The Bench also invoked Section 75(7) of the CGST Act, which prohibits confirmation of a demand exceeding the amount specified in the notice or based on grounds not mentioned in the notice.
According to the Tribunal, confirming liability under tax heads that had never been proposed in the show cause notice was inconsistent with this statutory restriction. The taxpayer had not been afforded an opportunity to respond to the CGST and SGST demand before it was confirmed.
The GSTAT further observed that Section 16(2)(aa), which provides statutory recognition to GSTR-2A and GSTR-2B matching, was introduced only with effect from January 1, 2022. It was therefore inapplicable to the disputed period from April 2019 to March 2020.
During that period, GSTR-2A was a facilitative, auto-populated statement and did not independently operate as a statutory condition for claiming credit, the Tribunal said.
The Bench also examined Rule 36(4) of the CGST Rules, which restricted ITC on invoices not uploaded by suppliers. It noted that the provision was introduced only on October 9, 2019, and did not apply to the period from April to September 2019. For the subsequent period, it was required to be applied in the form in which it then existed.
The GSTAT consequently directed that the periods from April 2019 to October 8, 2019, and from October 9, 2019, to March 2020 must be examined separately.
The Tribunal also found that the appellate authority had applied the CBIC circulars without considering their limited temporal operation. Circular No. 183/15/2022-GST relates to financial years 2017-18 and 2018-19, while Circular No. 193/05/2023-GST extended the prescribed verification mechanism only to the period from April 2019 to October 8, 2019.
Therefore, the entire financial year 2019-20 could not be brought within the verification mechanism under the circulars merely because the dispute concerned that financial year as a whole.
The failure to produce certificates prescribed under the circulars might be relevant to the verification process, the Bench said, but it could not dispense with the requirement to determine the actual ITC liability under the substantive statutory provisions applicable during the relevant period.
The Tribunal also held that the adjudication and appellate orders failed to satisfy the requirement of a reasoned and speaking order under Section 75(6) of the CGST Act. Neither authority had reconciled the conflicting calculations or explained the basis on which one computation was preferred over the other.
The GSTAT set aside the adjudication order dated July 30, 2024, as well as the first appellate order dated November 15, 2025.
The adjudicating authority was directed to conduct invoice-wise and, wherever necessary, supplier-wise verification of the disputed credit. It must examine the taxpayer’s invoices, purchase register, books of account and electronic credit ledger and determine whether any statutory condition applicable during the relevant period was actually breached.
The authority must also verify whether any part of the mismatch resulted from an inter-head misallocation between IGST and CGST or SGST.
Before drawing an adverse inference from any shortfall in GSTR-2A, the authority must enquire into the compliance status of the concerned suppliers and record findings concerning the taxpayer’s bona fides.
The Tribunal expressly prohibited the adjudicating authority from travelling beyond the tax heads, grounds and amounts contained in the show cause notice. The fresh proceedings may result in confirmation or dropping of the proposed demand, wholly or partly, but cannot lead to an enhancement.
The taxpayer must be given an effective opportunity to submit reconciliation statements, invoices, purchase records, books of account and certificates under the applicable CBIC circulars. A personal hearing must also be granted.
The adjudicating authority was directed to pass a fresh, reasoned order within 12 weeks from the communication of the GSTAT’s decision.
The Tribunal clarified that it had not expressed any final opinion on whether the disputed ITC was admissible. The questions of fact and law were left open for fresh determination within the confines of the original show cause notice.
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