GSTAT Bengaluru rules that GSTR-2A and GSTR-3B mismatch alone cannot prove wrongful ITC. Read the ruling on GST demand, Section 16 and ITC verification.
The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru Bench, has delivered an important ruling on the denial of Input Tax Credit (ITC) based merely on differences between the ITC claimed in GSTR-3B and the credit reflected in GSTR-2A.
In Peekay Industries v. Commissioner of Commercial Taxes, Karnataka, the Tribunal held that a mismatch between GSTR-2A and GSTR-3B may certainly warrant verification by the GST authorities, but such discrepancy, by itself, cannot conclusively establish that the taxpayer has wrongly availed Input Tax Credit.
The ruling is particularly significant for taxpayers facing GST demands arising from ITC reconciliation issues for the earlier GST years.
Background of the Case
The dispute related to Financial Year 2019-20. During proceedings, the GST authorities noticed an alleged difference between the Input Tax Credit claimed by the taxpayer and the credit appearing in the supplier-linked GSTR-2A.
The initial discrepancy pointed towards an alleged excess ITC of ₹82,701 under the IGST head. However, while passing the final adjudication order, the authorities confirmed a demand of ₹51,174 under CGST and SGST, along with interest of ₹40,708 and a penalty of ₹20,000.
The taxpayer challenged the demand before the appellate authorities and subsequently approached the GSTAT.
Tribunal Examines the ITC Reconciliation
The GSTAT found several inconsistencies in the manner in which the ITC demand had been determined.
According to the reconciliation, the alleged excess credit under IGST was ₹82,701, whereas under CGST and SGST there was actually a shortfall of ₹1,745 each. Despite this position, the final demand was confirmed under the CGST and SGST heads.
The Tribunal observed that the authorities had failed to satisfactorily explain the difference between the figures appearing in the original proceedings and those ultimately adopted in the adjudication order.
More importantly, the reconciliation furnished by the taxpayer had not been properly examined.
The Bench comprising Judicial Member Prabhakaran P.M. and Technical Member (State) Ravi Jesuraj S. emphasized that a tax demand cannot be sustained merely because a numerical difference exists between two GST returns.
GSTR-2A vs GSTR-3B Mismatch Is Not Conclusive Evidence
One of the most important observations of the Tribunal was that a difference between GSTR-2A and GSTR-3B can be a starting point for investigation, but it cannot automatically establish wrongful availment of ITC.
The authorities must examine the actual underlying transactions and supporting evidence before concluding that the taxpayer has wrongly claimed credit.
Such verification may include examination of:
- Tax invoices;
- Purchase registers;
- Books of account;
- Electronic Credit Ledger;
- Supplier-wise reconciliation;
- Invoice-wise ITC details;
- Evidence relating to receipt of goods or services; and
- Other documents demonstrating compliance with the statutory conditions for ITC.
Thus, the Tribunal reinforced the principle that ITC cannot be denied solely on the basis of an unexplained return mismatch without proper factual verification.
Section 16(2)(aa) Not Applicable to FY 2019-20
The Tribunal also considered the applicability of Section 16(2)(aa) of the CGST Act.
The provision, which introduced a specific statutory requirement relating to communication of invoice or debit note details by the supplier and their corresponding reflection in the recipient’s statement, came into effect from January 1, 2022.
Since the dispute concerned FY 2019-20, the Tribunal held that Section 16(2)(aa) could not be applied retrospectively to determine the taxpayer’s ITC eligibility for that period.
The Tribunal further observed that the authorities had not established a violation of the applicable condition under Section 16(2)(c) of the CGST Act.
Demand Cannot Travel Beyond the Show Cause Notice
Another significant aspect of the ruling concerned the scope of the original Show Cause Notice (SCN).
The discrepancy initially identified by the authorities related to the IGST component. However, the final order confirmed liability under CGST and SGST without adequately explaining the basis for such change.
The Tribunal noted that the CGST and SGST liability ultimately confirmed had not been proposed in the original SCN.
This reinforced the established principle that an adjudicating authority cannot travel beyond the allegations and tax liability proposed in the show cause notice while confirming a demand.
GSTAT Remands Matter for Fresh Adjudication
Finding that the earlier orders suffered from inadequate examination and insufficient reasoning, the GSTAT set aside both the adjudication order and the first appellate order.
The matter was remanded for fresh adjudication.
The authorities have been directed to undertake proper reconciliation and, where necessary, conduct invoice-wise and supplier-wise verification. They must also examine the taxpayer’s books, records and other supporting documents before determining whether any statutory requirement for claiming ITC was actually violated.
The Tribunal also directed that the fresh proceedings should remain confined to the grounds and tax heads contained in the original show cause notice and should not result in an enhancement of the demand. The taxpayer must also receive an effective opportunity to submit documents and be heard personally.
Key Takeaway for GST Taxpayers
The GSTAT Bengaluru ruling provides an important reminder that GSTR-2A and GSTR-3B reconciliation is an important compliance exercise, but a mismatch is not automatically equivalent to wrongful ITC availment.
For taxpayers facing ITC disputes, this decision highlights the importance of maintaining complete purchase documentation, invoice-wise reconciliation, books of account and evidence of actual receipt of goods or services.
For GST officers as well, the ruling underscores the need for a reasoned, evidence-based determination rather than mechanically confirming demands based only on return-generated discrepancies.
The decision is therefore relevant not only to GST litigation involving ITC mismatch, but also to businesses defending demands arising from differences between GSTR-2A, GSTR-3B and supplier-reported data.
Case: Peekay Industries v. Commissioner of Commercial Taxes, Karnataka
GSTAT Bengaluru: APL/34/BUR/2026
Citation: 2026 LLBiz GSTAT (BLR) 31
Period: FY 2019-20