The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru, has held that a mismatch between GSTR-3B and GSTR-9 may justify examination of a taxpayer’s records, but does not, by itself, establish excess availment of input tax credit (ITC).

The bench of Prabhakaran P M (Judicial Member) and Ravi Jesuraj S (Technical Member) set aside a demand concerning alleged excess ITC of approximately ₹7.37 lakh for financial year 2018-19 after finding that the authorities had failed to properly verify the return figures, examine the taxpayer’s reconciliation and provide a mandatory personal hearing.

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The Bench remanded the matter for fresh adjudication. It expressly left open whether the taxpayer had actually availed excess credit.

The dispute arose from an audit of appellant/assessee for April 2018 to March 2019. The department compared ITC availed through GSTR-3B with the credit stated to be available in the annual return, GSTR-9.

According to the department’s reconciliation, regular ITC availed in GSTR-3B amounted to ₹7,21,65,748 after excluding reverse charge mechanism (RCM) credit of ₹5,24,259. This was compared with ₹7,14,28,585 attributed to GSTR-9.

The resulting demand comprised IGST of ₹78,823, CGST of ₹3,29,171 and SGST of ₹3,29,171, totalling ₹7,37,165. The Tribunal noted that the records also referred to the total as ₹7,37,163 in some places.

The first appellate authority confirmed the disputed credit demand, along with interest of ₹5,97,105 and a penalty of ₹73,716.

A show cause notice under Section 73(1), accompanied by its summary in Form GST DRC-01, was issued on June 30, 2023. The adjudication order was passed on September 30, 2023, and upheld in first appeal on May 26, 2025.

The taxpayer maintained that it had not availed excess ITC and that the authorities had failed to properly consider its reconciliation, purchase return/rejection register and GSTR-9C.

It disputed the department’s treatment of ₹5,24,259 in RCM credit and denied having admitted excess availment of ₹7,37,163, contrary to the statement recorded in the adjudication order.

The company also contended that no personal hearing had been granted before the adverse adjudication order was passed.

Before GSTAT, it sought an opportunity to produce its books and explain the reconciliation before the proper officer. The department defended the demand, arguing that the returns and supporting records established excess credit.

The Tribunal rejected the first appellate authority’s reasoning that receipt of notices and submission of a written reply amounted to sufficient opportunity.

It held that Section 75(4) requires an opportunity of hearing where an adverse decision is contemplated. Since confirmation of a tax demand is an adverse decision, the taxpayer should have been granted a personal hearing.

“Section 75(4) gives a hearing as a separate right, and a written reply does not take its place,” the Bench observed.

The Tribunal further found that the defect had not been cured in the first appeal. The appellate authority had adopted the department’s figures without examining GSTR-9C, the books or the taxpayer’s reconciliation.

Accordingly, the adjudication order and the appellate order were unsustainable on this ground.

The Tribunal found that the department had deducted ₹5,24,259 from the ITC entry in Table 4(A)(5) of GSTR-3B on the assumption that RCM credit had been included there.

The Bench explained that RCM credit, other than on imports, ought to be reported in Table 4(A)(3). However, the prescribed reporting location did not establish where the taxpayer had actually reported the amount.

Whether the disputed RCM credit had been included in Table 4(A)(5) was a factual question requiring verification of the April and May 2018 returns.

The adjudicating authority had reached its conclusion without examining those returns and without hearing the taxpayer, who disputed the assumption.

The Tribunal also found inconsistencies in the figures used to sustain the demand.

It noted that the relevant inward supply figure in GSTR-9 was approximately ₹7,14,97,856. Comparing this with ₹7,21,65,748 produced a difference of approximately ₹6.68 lakh, rather than the ₹7.37 lakh alleged by the department.

On examining GSTR-9 filed on August 20, 2020, the Bench identified a difference of ₹6,67,891 between ITC availed through GSTR-3B and the total general and RCM credit reflected in the annual return.

These figures had not been properly cross-verified during audit or adjudication.

At the same time, the Tribunal noted that the taxpayer had not explained the difference appearing in Table 6J of its own GSTR-9 through GSTR-9C, even though the reconciliation statement showed no excess credit.

The Bench also found variations in rows M, N and O of Part III, Table 6, between copies of GSTR-9 available in the appeal record. It therefore directed the authority to first establish from the GST portal which annual return had actually been filed.

The Tribunal identified three principal defects in the adjudication: the unverified assumption concerning RCM credit, the recording of an admission of excess ITC unsupported by the record, and rejection of the taxpayer’s explanation about an annual return error without examining its books.

The Bench noted that Section 44 and Rule 80 did not provide a procedure for rectifying GSTR-9 once filed, and that the annual return could not be edited, modified or refiled online after submission.

In these circumstances, the taxpayer’s explanation that figures had been entered incorrectly required examination against its underlying records.

The Tribunal observed that a bona fide error in a return should be recognised as an error rather than treated as an independent source of tax liability.

However, it emphasised that the burden of proving ITC eligibility remained on the taxpayer under Section 155. The company would have to substantiate its claim with books and invoices.

The Tribunal held that the demand rested on a comparison of returns without the examination of records that the discrepancy required.

Where the taxpayer disputed a return figure and offered its books to support its explanation, the authorities were required to test that claim. A mismatch alone could not establish excess availment.

The Bench clarified that its observations concerned defects in the orders under challenge. It expressed no final view on the taxpayer’s substantive entitlement to the disputed credit.

The Tribunal set aside the September 30, 2023 adjudication order, its DRC-07 summary, the May 26, 2025 appellate order and the rectification order to the extent it concerned the disputed demand. Consequently, the related demand for tax, interest and penalty stood set aside.

Fresh adjudication must remain strictly confined to the June 30, 2023 show cause notice. The authority cannot travel beyond the tax heads or grounds specified in that notice, or confirm or propose tax, interest or penalty exceeding the amount specified under any head or ground.

The taxpayer must produce its books, month-wise eligible and ineligible ITC registers, GSTR-3B returns with working papers, portal-filed GSTR-9 and GSTR-9C, and RCM payable and receivable ledgers within 30 days of receiving the Tribunal’s order.

The documents must include details of RCM paid in March 2018 and claimed in April and May 2018, together with credit brought forward from 2017-18 and carried forward to 2019-20.

The adjudicating authority must complete the proceedings and pass a fresh order within three months of receiving the Tribunal’s order, uninfluenced by the findings in the orders set aside.

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