MM TAX CLUB

The Karnataka High Court has delivered a significant judgment providing relief to taxpayers facing GST demands due to Input Tax Credit (ITC) mismatch between GSTR-3B and GSTR-2A for Financial Years 2017-18 and 2018-19.

In many cases, GST authorities issued ITC reversal notices solely on the basis of differences between GSTR-3B and GSTR-2A without conducting proper verification. The recent ruling clarifies that such mechanical disallowances are legally unsustainable if Circular No. 183/15/2022-GST is not followed.

This judgment is especially important for taxpayers with pending GST litigation related to ITC mismatch for earlier years.

Background: ITC Mismatch Between GSTR-3B and GSTR-2A

During FY 2017-18 and 2018-19:

• GSTR-2B was not introduced.
• GSTR-2A was a dynamic, auto-populated statement based on supplier filings.
• There was no statutory provision mandating strict matching of ITC with GSTR-2A.

Despite this, many GST officers:

• Issued notices for ITC mismatch
• Passed demand orders solely based on system-generated differences
• Disallowed ITC without verifying whether tax was actually paid by the supplier

This led to widespread GST litigation across India.

Karnataka High Court Judgment: M/s Abhimaani Structures and Engineering

In the case of M/s Abhimaani Structures and Engineering, the Karnataka High Court examined whether ITC can be denied merely due to mismatch between GSTR-3B and GSTR-2A.

Key Observations of the Court:

• Authorities must strictly follow Circular No. 183/15/2022-GST.
• ITC cannot be disallowed mechanically based only on 2A mismatch.
• Proper verification and due process are mandatory.
• Orders passed without adhering to the circular are liable to be set aside.

The Court set aside the demand order because the department failed to follow the prescribed procedure.

What Is Circular No. 183/15/2022-GST?

Circular 183 was issued to clarify the procedure for handling ITC mismatch cases for FY 2017-18 and 2018-19.

As per Circular 183, before disallowing ITC, the department must:

1. Verify supplier details.
2. Confirm whether tax has actually been paid to the government.
3. Provide opportunity to the taxpayer to submit documents.
4. Conduct proper verification instead of relying only on portal data.
5. Follow a structured adjudication process.

The circular makes it clear that ITC cannot be rejected solely on the basis of GSTR-2A difference.

Why This Judgment Is Important

This Karnataka High Court ruling strengthens the principle that:

• Procedural mismatch cannot override substantive right.
• If tax has been paid and conditions under Section 16 are satisfied, ITC cannot be denied arbitrarily.
• Officers are bound by circulars issued by the CBIC.

This is a major relief for taxpayers whose GST demands are based only on GSTR-2A vs GSTR-3B mismatch for old years.

What About ITC Reconciliation After 01-01-2022?

From 1 January 2022 onwards, Section 16(2)(aa) of the CGST Act was introduced.

Now:

• ITC is allowed only if invoice details are furnished by supplier.
• ITC must reflect in GSTR-2B.
• GSTR-2B reconciliation is mandatory.

Therefore:

• For current years, ITC must match with GSTR-2B.
• If ITC is not appearing in GSTR-2B, taxpayers must follow up with suppliers.

Hence, this Karnataka High Court ruling mainly benefits cases where GSTR-2B was not applicable.

Can Taxpayers File Appeal Based on This Judgment?

Yes.

If you have:

• GST demand for FY 2017-18 or 2018-19
• ITC disallowed solely due to GSTR-2A mismatch
• No proper verification conducted by department

You may rely on this Karnataka High Court ITC mismatch judgment while filing appeal.

However, each case depends on facts and documentation.

Frequently Asked Questions (FAQ)

1. Can ITC be denied only because it is not reflected in GSTR-2A?

For FY 2017-18 and 2018-19, as per this judgment, ITC cannot be denied solely due to GSTR-2A mismatch without proper verification.

2. Is Circular 183 mandatory for GST officers?

Yes. When a circular prescribes a procedure, officers are bound to follow it.

3. Does this ruling apply to GSTR-2B mismatch?

Not generally. After 01-01-2022, ITC is legally linked to GSTR-2B under Section 16(2)(aa).

4. Is this judgment applicable across India?

It is binding within Karnataka jurisdiction but can be cited as persuasive authority in other states.

Conclusion

The Karnataka High Court ITC mismatch judgment provides significant relief in old GST litigation for FY 2017-18 and 2018-19. It reinforces that ITC cannot be disallowed mechanically based on GSTR-2A mismatch without following Circular 183 procedure.

While this ruling strengthens taxpayers’ position in older cases, strict GSTR-2B reconciliation remains essential for current compliance.

Taxpayers facing ITC reversal notices should review whether due process under Circular 183 was followed before accepting any demand.