TaxTMI 
TaxTMI 
GSTR-2A Mismatch - Verification Must Precede ITC Denial
X X X X Extracts X X X X
X X X X Extracts X X X X
....STR-2A Mismatch - Verification Must Precede ITC Denial<br>By: - Raj Jaggi<br>Goods and Services Tax - GST<br>Dated:- 9-9-2026<br>A Return Mismatch Raises a Question; It Does Not Answer It The ongoing litigation over discrepancies between the Input Tax Credit claimed in Form GSTR-3B and the credit appearing in Form GSTR-2A raises a fundamental question about GST adjudication. Can an electronic mismatch alone establish wrongful availment of ITC, or does it merely warrant the Department to undertake further enquiry? This distinction is significant, particularly for the earlier years of GST, when the statutory framework governing invoice matching was materially different from that which operates today. The Bengaluru Bench of the Goods and Services Tax Appellate Tribunal has examined this issue in considerable detail in M/s. Peekay Industries Versus Commissioner of Commercial Taxes, Karnataka, Commercial Tax Officer (LGSTO), Bengaluru, Joint Commissioner of Commercial Taxes (Appeals-5), Bengaluru. - 2026 (9) TMI 454 - GSTAT BENGALURU . The judgment recognises the legitimacy of system-based scrutiny but draws a clear line between detection of a discrepancy and determinati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of liability. A mismatch between GSTR-2A and GSTR-3B may justify scrutiny under Section 61 and verification under Section 73, but the final demand must rest upon proper examination of the records, statutory provisions and the explanation furnished by the registered person. The decision is also important because the dispute was not confined to the evidentiary value of GSTR-2A. It involved an unexplained change from an IGST proposal to a CGST/SGST demand, competing computations, the interpretation of Section 16(2)(c), the non-applicability of Section 16(2)(aa) to FY 2019-20, the commencement of Rule 36(4) from 09.10.2019, the period-specific application of CBIC Circular Nos. 183/15/2022-GST and 193/05/2023-GST, consequential interest and penalty, and the statutory requirement of a reasoned speaking order under Section 75(6). How an IGST Mismatch Became a CGST/SGST Demand The appellant, M/s Peekay Industries, was engaged in the manufacture and supply of spring washers and other engineering products. Scrutiny of its returns for FY 2019-20 revealed a discrepancy between the ITC claimed in Form GSTR-3B and the credit auto-populated in Form GSTR-2A. An intimation in Form GST A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....SMT-10 dated 25.03.2024 alleged excess ITC of Rs. 82,701. Significantly, the entire alleged excess was under the IGST head. By contrast, the CGST and SGST columns showed an under-claim of Rs. 1,745 each. The appellant replied on 30.03.2024 and furnished a reconciliation relating to IGST. The same position continued in DRC-01A dated 15.05.2024 and in the show-cause notice in DRC-01 dated 29.05.2024. The proposed liability remained confined to IGST. Yet the adjudication order dated 30.07.2024 took a materially different course. Instead of confirming any IGST liability, it confirmed tax of Rs. 51,174 comprising CGST of Rs. 25,587 and SGST of Rs. 25,587, along with interest of Rs. 40,708 and penalty of Rs. 20,000. The aggregate liability thus came to Rs. 1,11,882. The adjudicating authority relied upon another working described as "Excess of 2018-19 claimed in 2019-20". This second working created the central factual difficulty. The appellant's letter dated 30.03.2024 reconciled IGST alone. It contained no CGST or SGST reconciliation. Nevertheless, DRC-07 attributed CGST and SGST figures to that reply without explaining their source. The first appellate authority thereafter u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pheld the demand, primarily relying upon Section 16(2)(c) and the appellant's failure to furnish the certificates contemplated by the CBIC circulars relating to mismatch cases. Initiation of Proceedings and Confirmation of Liability Are Different Stages One of the most useful aspects of the judgment is the distinction between initiating proceedings and confirming a tax demand. Where scrutiny of returns reveals a mismatch between GSTR-3B and GSTR-2A, the Department need not ignore it. Such a discrepancy can legitimately trigger scrutiny under Section 61 and, where necessary, proceedings under Section 73. The mere fact that proceedings arose from an electronic mismatch does not render their initiation invalid. The legal threshold for confirmation, however, is different. Once a taxpayer furnishes reconciliation, documents, or an explanation, the adjudicating authority must examine that material and determine whether any excess credit has in fact been availed. In the present case, the primary reconciliation showed an excess of Rs. 82,701 under IGST but an under-claim under CGST and SGST. The final order, nevertheless, abandoned the IGST figure and confirmed a CGST/SGST lia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bility through another unexplained computation. The adjudicating authority neither explained why the original reconciliation was discarded nor established the assumed adjustment of FY 2018-19 credit in FY 2019-20. The principle is therefore that a discrepancy may justify an investigation, but it cannot, by itself, complete the adjudicatory exercise. What is sufficient to open an enquiry is not necessarily sufficient to impose liability. The final determination under Section 73 must rest upon facts established from the records and the explanation offered by the registered person. The judgment describes the discrepancy as the beginning of the enquiry rather than its end. GSTR-2A Mismatch Is Not Conclusive Proof of Wrongful ITC The Revenue's principal legal argument was based on Section 16(2)(c), which requires that tax charged in respect of the supply should actually have been paid to the Government. Reliance was also placed on ALD Automotive Pvt. Ltd. Versus The Commercial Tax Officer Now Upgraded As The Assistant Commissioner (CT) & Ors. - 2018 (10) TMI 814 - Supreme Court, for the proposition that ITC is a statutory concession that must be claimed strictly in acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ordance with the conditions prescribed by law. There is no conflict between that proposition and the reasoning adopted in the present case. The statutory conditions governing ITC must undoubtedly be satisfied. However, two separate questions arise. The first is whether the statute contains a particular condition. The second is whether the facts establish that the taxpayer has violated that condition. ALD Automotive dealt with compliance with statutory conditions governing credit in the context of a limitation dispute under the Tamil Nadu VAT law. It did not decide whether a mismatch in GSTR-2A is, by itself, proof that the supplier has failed to discharge tax. That distinction is crucial. Section 16(2)(c) cannot be ignored merely because the recipient possesses an invoice. Equally, breach of Section 16(2)(c) cannot be inferred solely from the non-reflection of the invoice or credit in GSTR-2A. The authorities did not conduct any corresponding enquiry into the suppliers or their tax payments, nor did they properly examine the appellant's reconciliation. Accordingly, the electronic mismatch warranted verification but did not conclusively establish either supplier non-paymen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t or wrongful availment of ITC. Strict Compliance with ITC Conditions Does Not Dispense with Proof The reliance on M/s. Mahalaxmi Cotton Ginning Pressing and Oil Industries, Kolhapur. Versus The State of Maharashtra & Ors. - 2012 (5) TMI 152 - BOMBAY HIGH COURT, and ALD Automotive Pvt. Ltd. Versus The Commercial Tax Officer Now Upgraded As The Assistant Commissioner (CT) & Ors. - 2018 (10) TMI 814 - Supreme Court, warrants closer consideration, as both decisions were invoked to emphasise the conditional nature of ITC. Mahalaxmi Cotton recognised, in the context of the Maharashtra VAT legislation, the validity of a statutory scheme linking set-off to tax actually reaching the Government treasury. Its relevance lies in the broader proposition that the Legislature can prescribe substantive conditions for the availment of credit and that a taxpayer cannot claim an indefeasible right to credit independently of those statutory conditions. ALD Automotive reinforces the related principle that a concession under a taxing statute must be availed within the conditions and limitations enacted by the Legislature. The case therefore supports strict adherence to the statut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ory framework. But strict construction of an ITC condition does not dispense with the need to establish the facts that attract that condition. The proposition that credit is conditional and the proposition that a particular condition has been violated are not interchangeable. The present judgment therefore does not dilute either precedent. Instead, it places them in their proper evidentiary setting. Section 16(2)(c) remains mandatory, but where the Department alleges that the supplier has failed to pay tax, some factual basis must exist for that conclusion. A GSTR-2A mismatch may create suspicion and justify verification; it does not automatically establish non-payment. Underlying Transactions Must Be Examined Where ITC Eligibility Is Disputed The judgment also considered The State of Karnataka Versus M/s Ecom Gill Coffee Trading Private Limited - 2023 (3) TMI 533 - Supreme Court. That decision arose under the Karnataka VAT law and concerned disputed claims of input tax credit, where the genuineness of the underlying transactions was in question. The principle considered relevant in the present case was that ITC determination may require examination of the actual tran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sactions and supporting records, rather than being decided merely on the production of a limited set of documents. The significance of Ecom Gill Coffee Trading must, nevertheless, be kept within proper limits. It does not decide the evidentiary character of GSTR-2A under the CGST Act, nor does it establish that a GSTR-2A mismatch is proof of wrongful ITC. Its relevance lies in the broader evidentiary principle that where eligibility to credit is genuinely disputed, the determination may require examination of the transaction itself, including the relevant commercial and statutory records. This principle operates equally against mechanical approaches on either side. The taxpayer cannot necessarily insist that possession of an invoice alone must conclude the matter where the genuineness of the transaction is itself disputed. Equally, the Department cannot treat non-reflection in an electronic statement as automatically disproving the transaction. Depending upon the controversy, invoices, purchase registers, books of account, the electronic credit ledger, proof of receipt of goods or services, and supplier-related material may all require consideration. Supplier Default Must ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Be Established, Not Presumed Section 16(2)(c) requires actual payment of tax to the Government, but supplier non-payment cannot be presumed merely from a GSTR-2A mismatch. M/s. D.Y. Beathel Enterprises Versus The State Tax Officer (Data Cell), (Investigation Wing) Commercial Tax Buildings, Tirunelveli. - 2021 (3) TMI 1020 - MADRAS HIGH COURT, was relevant only to the need for proper enquiry where supplier compliance is disputed. The principle is that where supplier default forms the basis for denial of ITC, that default must first be verified and established. Fresh adjudication therefore required examination of the appellant's reconciliation and records, along with such enquiry into the suppliers as the law required. A Show-Cause Notice Defines the Limits of Adjudication The proceedings in ASMT-10, DRC-01A and DRC-01 alleged excess ITC only under IGST, whereas DRC-07 ultimately confirmed CGST and SGST of Rs. 25,587 each and reduced the IGST demand to nil. Thus, the adjudication travelled beyond the tax heads proposed in the notice. Section 75(7) prohibits confirmation beyond the amount or grounds specified in the show-cause notice. A taxpayer cannot be confr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onted for the first time in the final order with a materially different liability based on a different computation. Any such change must first be put to the taxpayer for an effective opportunity to respond. Competing Computations Must Be Reconciled Before Liability Is Confirmed The primary working showed excess ITC only under IGST, whereas the subsequent "Net Excess Claim" working used different figures and resulted in CGST and SGST liability. The latter was attributed to the appellant's reply dated 30.03.2024, even though that reply was confined to IGST, and the source of the CGST/SGST figures remained unexplained. Where competing computations produce materially different results, the authority must reconcile them and explain why one has been accepted over the other. A demand cannot rest on an unexplained computation, particularly where it also changes the tax heads. The Statutory Position Must Be Examined According to the Relevant Tax Period For FY 2019-20, the legislative timeline was crucial. Section 16(2)(aa), effective from 01.01.2022, did not apply to the disputed period. Rule 36(4), introduced from 09.10.2019, was likewise inapplicable to the period from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....April 2019 to 08.10.2019 and applied thereafter, subject to the restrictions then in force. ITC eligibility must therefore be examined under the law applicable to the relevant tax period. A restriction introduced subsequently cannot be applied retrospectively unless the law expressly so provides. Procedural Circulars Must Be Applied Within Their Prescribed Periods Circular No. 183/15/2022-GST covered GSTR-2A/ GSTR-3B differences for FYs 2017-18 and 2018-19, while Circular No. 193/05/2023-GST extended its verification mechanism only to the period from April 2019 to 08.10.2019. The period from 09.10.2019 to March 2020 therefore required separate examination under the law then applicable. Non-production of certificates contemplated by the circulars could be relevant for verification, but could not substitute for the determination of ITC eligibility under the applicable statutory provisions. A procedural circular must operate within its prescribed period and cannot override the substantive law. Interest and Penalty Must Follow the Fate of the Tax Demand Interest under Section 50 and penalty under Section 73(9) were consequential to the principal tax demand. Since the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tax liability itself required fresh determination, the interest and penalty could not independently survive. However, the Court did not finally rule them out. Their applicability and quantum would depend upon the tax liability determined afresh and the fulfilment of the relevant statutory conditions. Reasons Are an Essential Part of a Valid Tax Order Section 75(6) requires the relevant facts and the basis of the decision to be stated in the order. As recognised in KRANTI ASSOCIATES PVT. LTD. Versus MASOOD AHMED KHAN - 2010 (9) TMI 886 - Supreme Court, reasons demonstrate application of mind and enable effective appellate review. Here, neither authority explained the conflicting computations, the source of the alternative figures, or the change from IGST to CGST/SGST. The absence of reasons on the very basis of the tax computation rendered the orders deficient as speaking orders. Remand Cannot Become an Opportunity to Build a New Case Remand was necessary because the underlying records and the correct ITC position had not been properly examined. Fresh adjudication required invoice-wise verification, and where necessary, supplier-wise verification, application ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Section 16(2) and Rule 36(4) as applicable to the relevant period, and examination of supplier compliance and any inter-head misallocation. Importantly, the remand was strictly confined to DRC-01 dated 29.05.2024. No new grounds or tax heads could be introduced, nor could the proposed tax, interest or penalty be enhanced. After considering the appellant's documents and granting a personal hearing, a fresh reasoned order was to be passed within twelve weeks, with final ITC admissibility left open. Electronic Mismatch Is Evidence for Enquiry, Not a Substitute for Adjudication The judgment draws an important distinction between electronic detection and legal determination. A GSTR-2A/ GSTR-3B mismatch may legitimately trigger scrutiny, but it cannot, by itself, establish wrongful ITC. Once the difference is disputed, the taxpayer's reconciliation, underlying records, applicable statutory provisions, and supplier-related evidence must be properly examined. The principle is balanced: electronic data can identify discrepancies, but it cannot replace adjudication. Technology may detect the discrepancy; only proper verification and reasoned adjudication can establish ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the tax liability. *** =============<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....