Karnataka High Court Holds ITC Cannot Be Denied Solely on GSTR-2A Mismatch Without Independent Verification Under Section 73(9) of CGST Act

Karnataka High Court addressed the legality of an order passed under Section 73(9) of the Karnataka Goods and Services Tax Act, 2017, which confirmed tax, interest, and penalty against a registered dealer engaged in the iron and steel business for the financial year 2017-18. The petitioner challenged the order on the grounds that it was mechanical, denied effective opportunity for personal hearing, and failed to properly consider reconciliation statements regarding Input Tax Credit (ITC) discrepancies.

The dispute arose from scrutiny proceedings initiated under Section 61 of the Act, where discrepancies were noted between the petitioner’s GSTR-3B, GSTR-1, and GSTR-2A returns. The tax authorities issued notices and ultimately passed an order confirming liability based primarily on differences in outward supplies and alleged ITC mismatches. The petitioner argued that the discrepancies were bona fide errors during the initial GST implementation phase and that ITC should not be denied solely due to portal mismatches. It was further contended that the petitioner was not afforded an effective personal hearing as mandated by Section 75(4) of the CGST Act, and that relevant reconciliation circulars were not considered.

The respondent countered that the writ petition was not maintainable due to the availability of a statutory appeal under Section 107 of the CGST Act and asserted that adequate opportunity had been provided at all stages. The respondent maintained that the order was legal and proper, based on verification of statutory records.

Upon review, the Court reiterated the settled principle that the existence of an alternative remedy does not bar writ jurisdiction where there is a violation of natural justice, mechanical exercise of power, jurisdictional error, or disregard of procedural safeguards. The Court found that the impugned order was largely based on portal mismatches and lacked detailed discussion or independent examination of reconciliation documents, purchase registers, tax invoices, or supply status. The reasoning in the order was primarily computational and did not demonstrate compliance with the requirement for a personal hearing under Section 75(4).

The Court clarified that Section 73 of the CGST Act is intended to ensure fair adjudication after giving the assessee an opportunity to be heard, and is not meant to operate mechanically on auto-generated mismatched data. The denial of ITC solely on the basis of GSTR-2A mismatch, without verifying compliance with supplies and examination of books of accounts, was held to be contrary to the scheme of GST.

Accordingly, the Court set aside the impugned order and remitted the matter back to the adjudicating authority for fresh consideration. The petitioner was granted liberty to file reconciliation statements, produce books of accounts, and pay any admitted outward difference. The authority was directed to afford a personal hearing, consider reconciliation in light of Circular No.183/15/22-GST, and pass a reasoned order in accordance with law. The Court also directed that no coercive steps be taken against the petitioner until the matter is reconsidered, and kept all contentions open for adjudication.

This decision reinforces the requirement for tax authorities to conduct independent verification and provide a fair hearing before denying ITC, especially in cases involving technical mismatches during the initial years of GST implementation.