Input Tax Credit mismatch assessments require prescribed verification and fair hearing before reversal; unsustainable orders were set aside and remitted.

Input Tax Credit reversal based on return mismatch cannot be sustained unless the prescribed verification procedure is followed, including reconciliation, notice, opportunity to explain discrepancies, and adherence to natural justice; the assessment orders were set aside for non-compliance. The related finding on non-maintenance of books of account was only consequential and could not survive once the main assessment orders fell. The matters were remitted for fresh consideration with notice and de novo proceedings in accordance with law and the mismatch procedure.

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Issues: (i) Whether the assessment orders reversing Input Tax Credit on the basis of mismatch could be sustained when the prescribed mismatch procedure had not been followed. (ii) Whether the consequential issue relating to non-maintenance of books of accounts could survive after the main assessment orders were set aside.

Issue (i): Whether the assessment orders reversing Input Tax Credit on the basis of mismatch could be sustained when the prescribed mismatch procedure had not been followed.

Analysis: The dispute concerned reversal of Input Tax Credit on account of mismatch between the purchaser's returns and the seller's returns. The governing circular prescribed a structured procedure for verification of mismatch cases, including reconciliation of data, issue of notice, opportunity to explain discrepancies, enquiry with the other end dealer where necessary, and observance of the principles of natural justice before adverse assessment action is taken. The admitted position was that the assessing authority had not followed that procedure.

Conclusion: The assessment orders were not sustainable and were set aside.

Issue (ii): Whether the consequential issue relating to non-maintenance of books of accounts could survive after the main assessment orders were set aside.

Analysis: The issue of non-maintenance of books of accounts was only an ancillary aspect of the assessment. Once the assessment orders themselves were held unsustainable and set aside, the consequential finding could not independently stand and had to go with the main order.

Conclusion: The issue also stood set aside.

Final Conclusion: The matters were remitted for fresh consideration, with notice to be issued and proceedings to be completed de novo in accordance with law and the prescribed mismatch procedure.

Ratio Decidendi: An assessment based on mismatch of returns cannot be sustained unless the authority follows the prescribed verification procedure and affords a fair opportunity to the dealer before making an adverse determination.

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