Input tax credit mismatches require supplier-tax proof, while accounted e-way bills and unreported return notes cannot alone create tax demands.
Input tax credit cannot be denied solely because of a GSTR-3B and GSTR-2A mismatch during the relevant period; eligibility still requires proof that suppliers paid the tax, with the claimant bearing the evidentiary burden. E-way bill-based tax demands do not arise where reconciliation records establish that inward supplies were invoiced and accounted for. Interest on wrongly availed credit applies only to the extent of wrongful utilisation, determined by the electronic credit ledger balance; pre-notice tax payment without payable interest precludes penalty. Unreported sales-return credit notes constitute a compliance lapse but do not alone establish short payment of output tax.
Issues: (i) Whether input tax credit disallowed on the stated GSTR-3B and GSTR-2A mismatch was admissible; (ii) Whether tax could be demanded for alleged unaccounted inward supplies covered by 46 e-way bills under Section 35(6); (iii) Whether interest and penalty could be levied on input tax credit reversed on a purchase return; (iv) Whether non-reporting of sales-return credit notes in Form GSTR-1 created a tax liability.
Issue (i): Whether input tax credit disallowed on the stated GSTR-3B and GSTR-2A mismatch was admissible.
Analysis: Form GSTR-2A was only a facilitative record during the relevant period, and a mismatch did not by itself defeat credit. Eligibility nevertheless required satisfaction of Section 16(2)(c), while Section 155 placed the burden of proof on the claimant. Documentary material established credit of Rs. 3,44,974 through reported invoices and import documentation. Credit of Rs. 51,255 relating to four invoices remained unsupported by proof that the suppliers had paid the tax to the Government. Interest and penalty were consequential only to the extent of the credit validly disallowed.
Conclusion: The disallowance of Rs. 3,44,974 was set aside in favour of the assessee. Credit of Rs. 51,255 was disallowed, with consequential interest and penalty confined to that amount.
Issue (ii): Whether tax could be demanded for alleged unaccounted inward supplies covered by 46 e-way bills under Section 35(6).
Analysis: Section 35(6) applies only where goods or services have not been accounted for. The reconciliation statement, purchase register and ledger records linked each disputed e-way bill to an invoice and accounting entry. A determination under Sections 73(9) and 75(6) required consideration of this specific explanation and a reasoned basis for rejecting it. Since the supplies stood accounted for, the statutory premise for treating them as supplies by the assessee was absent; the proposed addition of gross profit did not arise.
Conclusion: The tax demand on the alleged unaccounted inward supplies, together with interest and penalty, was set aside in favour of the assessee.
Issue (iii): Whether interest and penalty could be levied on input tax credit reversed on a purchase return.
Analysis: Under Section 50(3) read with Rule 88B(3), interest on wrongly availed credit arises only where the credit is also utilised. Wrongful utilisation is deemed only to the extent the electronic credit ledger balance falls below the wrongly availed credit. The electronic credit ledger balance did not fall below the reversed credit amount. As tax had been paid before issuance of notice and no interest was payable, Sections 73(5) and 73(6) precluded notice and penalty in respect of that tax.
Conclusion: The interest of Rs. 27,530 and penalty of Rs. 5,188 were set aside in favour of the assessee. The pre-notice tax payment remained appropriated.
Issue (iv): Whether non-reporting of sales-return credit notes in Form GSTR-1 created a tax liability.
Analysis: Section 37(1) read with Rule 59(2) required credit notes to be reported in Form GSTR-1. However, Section 34 treats a credit note issued for returned goods as a mechanism for reduction of the supplier's output tax liability, subject to statutory conditions. Failure to report such a credit note was a compliance lapse but did not, by itself, establish short payment of tax by the supplier.
Conclusion: The tax demand of Rs. 99,718 arising from unreported sales-return credit notes, with consequential interest and penalty, was set aside in favour of the assessee.
Final Conclusion: The surviving liability is confined to the unsupported input tax credit of Rs. 51,255 and the statutory interest and penalty consequential to that limited disallowance.