ITC mismatch reconciliation procedure must be followed before sustaining GST demand on alleged input tax credit discrepancies.

Where an alleged mismatch between Form GSTR-3B and Form GSTR-2A is used to sustain a demand for ineligible input tax credit, the prescribed reconciliation procedure must first be followed. The Karnataka High Court found that the non-followance of Circular No. 183/15/2022-GST dated 27.12.2022 was not controverted, and the adjudication order could not stand on that basis. The impugned order and consequential demand were set aside, and the matter was remanded for fresh adjudication from the stage of reply to the show cause notice, with liberty to raise all contentions before the assessing officer.

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Issues: Whether the adjudication order confirming demand on account of alleged ineligible input tax credit and related discrepancies was liable to be set aside for non-followance of the procedure prescribed for mismatch between Form GSTR 3B and Form GSTR 2A.

Analysis: The adjudication recorded discrepancies relating to excess availment of input tax credit, ITC claimed against invoices of non-existing suppliers, non-payment of GST under reverse charge mechanism, and excess ITC in respect of RCM entries. The challenge was founded on the procedure prescribed in Circular No. 183/15/2022-GST dated 27.12.2022 for dealing with differences between Form GSTR 3B and Form GSTR 2A. The non-followance of that procedure was not controverted, and the Court found it appropriate to set aside the order and remit the matter so that the mismatch could be reconciled in accordance with the circular.

Conclusion: The impugned adjudication order and the consequential demand were set aside, and the matter was remanded for reconsideration from the stage of reply to the show cause notice with liberty to raise all contentions before the assessing officer.

Final Conclusion: The proceedings were reopened for fresh adjudication after permitting reconciliation of the ITC mismatch under the prescribed GST circular, and the assessee obtained a remand with consequential relief.

Ratio Decidendi: Where an ITC mismatch between Form GSTR 3B and Form GSTR 2A is alleged, the prescribed reconciliation procedure must be followed before sustaining an adverse adjudication on ineligible input tax credit.

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