Karnataka High Court Holds Taxpayer Entitled to Fresh Opportunity Where Input Tax Credit Mismatch Due to Supplier’s Delayed Returns

Karnataka High Court addressed the issue of whether a taxpayer should be granted a further opportunity to present its case when an adjudication order is passed due to a mismatch in Input Tax Credit (ITC) between Forms GSTR-3B and GSTR-2A, allegedly caused by the supplier’s delayed filing of returns and tax payment.

The petitioner challenged both the vires of Section 16(2)(c) of the Central Goods and Services Tax Act/Karnataka Goods and Services Tax Act, 2017 and the adjudication order dated 14.02.2025. However, during the hearing, the petitioner’s counsel clarified that the challenge to the statutory provision was not being pressed, focusing instead on the lack of reasonable opportunity in the adjudication proceedings.

The adjudication order under challenge was based on the assertion that the petitioner failed to respond to a Show Cause Notice (SCN) issued via the GST portal. The respondent contended that the SCN was duly uploaded and that an opportunity for a personal hearing was extended, though no further details of such opportunity were provided.

The petitioner argued that the ITC mismatch was solely due to the supplier’s belated return filing and subsequent tax remittance, and produced a reconciliation statement in support. The Court noted the absence of clear evidence regarding the communication of the SCN and the details of the personal hearing opportunity.

Upon considering these circumstances, the Court held that the petitioner should be afforded another reasonable opportunity to present its case, particularly the reconciliation of returns and evidence of tax remittance by the supplier. Accordingly, the Court dismissed the challenge to Section 16(2)(c) but quashed the adjudication order, restoring the proceedings to the adjudicating authority.

The Court directed that the petitioner may submit all relevant documents, including the supplier’s returns and reconciliation statement, by 13.07.2026. The adjudicating authority is required to consider these materials and conclude the proceedings by passing a reasoned order.

This decision underscores the principle that taxpayers must be given a fair and reasonable opportunity to address discrepancies in ITC claims, especially where such discrepancies arise from factors beyond their immediate control, such as a supplier’s delayed compliance.