ITC Cannot Be Denied for GSTR-2A Mismatch as Imports & SEZ Supplies Were Not Reflected

Biocon Limited Vs State of Karnataka (Karnataka High Court)

The petitioner challenged an Order-in-Original dated 22.02.2024 passed under Section 73(9) of the CGST/KGST Act, 2017, whereby the tax authorities confirmed various GST demands arising out of the audit for FY 2018-19. The proceedings originated from audit observations, followed by a pre-intimation in Form GST DRC-01A, a Show Cause Notice (SCN) under Section 73(1), replies submitted by the petitioner, personal hearing, and written submissions. The impugned order ultimately confirmed tax of ₹30.37 crore along with interest of ₹29.14 crore and penalty of ₹3.03 crore. Aggrieved by the order, the petitioner approached the Karnataka High Court.

The principal challenge before the High Court concerned the denial of Input Tax Credit (ITC) of ₹20,00,82,381 on the ground that the ITC claimed in GSTR-3B exceeded the ITC reflected in GSTR-2A. The audit alleged that, for the period April 2018 to March 2019, several invoices were not reflected in GSTR-2A, resulting in excess availment of ITC in violation of Section 16(2) of the CGST/KGST Act. Based on this mismatch, the department demanded reversal of ITC together with interest and penalty.

The petitioner contended that the alleged mismatch arose only due to reporting errors and the design of the GST system. It explained that ITC relating to import of goods and procurements from SEZ units had been reported under “All Other ITC” in Table 4(A)(5) of GSTR-3B instead of Table 4(A)(1), which is meant for imports. According to the petitioner, after excluding ITC relating to imports and SEZ procurements, there was no excess ITC claim. The petitioner also pointed out that the reporting error had been corrected in the annual return (GSTR-9) by disclosing the ITC under Table 6E. Additionally, the same issue had earlier been examined by the jurisdictional officer through ASMT-10 proceedings, to which the petitioner had furnished a detailed reconciliation.

The adjudicating authority rejected the explanation. It held that the petitioner’s claim regarding incorrect reporting in GSTR-3B was not acceptable, observed that GSTR-9 could not be used to avail ITC, and stated that any missed ITC could only be claimed within the time prescribed under Section 16(4). It further held that the petitioner had not produced an ASMT-12 order and therefore confirmed the demand of ₹20,00,82,381 along with applicable interest and penalty.

The High Court found the findings on the GSTR-2A mismatch issue to be contrary to the facts and the material on record. It observed that, during the period from April 2018 to March 2019, GSTR-2A was designed to capture only details of supplies made by domestic suppliers and did not reflect imports or procurements from SEZ units. The Court noted that import details and SEZ supplies began reflecting in GSTR-2A only from August 2020, as indicated in the Government Advisory dated 29.08.2020. The Court also referred to the Press Release dated 19.10.2021, which clarified that GSTN had the functionality to obtain details from ICEGATE and that, after insertion of Section 16(2)(aa) with effect from 01.01.2022, matching with GSTR-2A became relevant.

The Court further held that the mismatch resulted from incorrect disclosure in GSTR-3B and not from wrongful availment of ITC. It accepted the petitioner’s contention that the ITC relating to imports and SEZ procurements had been reported under the wrong table in GSTR-3B and later correctly disclosed in GSTR-9. The Court observed that the authorities had failed to appreciate that import details and SEZ supplies were not reflected in GSTR-2A during the relevant period and that Rule 36(1)(d) recognizes the Bill of Entry as the relevant document for availing ITC on imported goods. It also held that ITC could not be denied merely because of a typographical error in the reply to the SCN or because of a mismatch with GSTR-2A for the relevant assessment year.

Accordingly, the High Court quashed the demand relating to the alleged excess ITC of ₹20,00,82,381 along with the corresponding interest and penalty. It held that the findings recorded by the adjudicating authority on this issue were erroneous and contrary to the material available on record.

With regard to the remaining issues, the Court found that the adjudicating authority had failed to adequately consider the petitioner’s submissions, statutory provisions, circulars, notifications and judicial precedents. These issues included non-payment of GST on corporate guarantee, taxability of cross charges, ITC on promotion expenses, denial of concessional tax rate for merchant exports, excess refund claim based on invoice value instead of shipping bill, reverse charge liability on import of services, and restriction of ITC relating to doctor consulting and patient counselling under Section 17.

The High Court partly allowed the writ petition. It set aside the demand relating to excess ITC arising from GSTR-2A mismatch and remanded all the remaining disputed issues to the Deputy Commissioner of Commercial Taxes for fresh adjudication in accordance with law after considering the relevant statutory provisions, circulars, notifications, judgments and the petitioner’s submissions.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

In this petition, petitioner seeks the following reliefs:

“i) To issue a Writ of Certiorari or any other appropriate writ or direction to quash the impugned order dated 22 February 2024 in Form GST DRC 07 with reference no. ZD290224053591F and No. DCCT (A)-4.7/DGSTO-4/BIO/2023-24 (Annexure A), passed by Ld. Respondent No.3 in confirmation of SCN dated 29 December 2023 issued in Form GST DRC 01 numbered as DC (Aud)-4.7/GST/DRC-01/BIO/2023-24 and ZD2912230915861 (Annexure H) passed by Ld. Respondent No. 3, being in violation of principles of natural justice, of consistency and against the provisions of law.

ii) To Issue order(s), direction(s), writ(s) or any other relief(s) as this Hon’ble Court deems fit and proper in the facts and circumstances of the case and in the interest of justice.

iii) To award cost of this petition

iv) Pass any other order or give any other direction as this Hon’ble Court deems fit and appropriate in the circumstances of the case.”

2. A perusal of the material on record will indicate that in pursuance of the audit observations, audit notices, audit proceedings and correspondence between the petitioner and the respondent for the Financial Year/Tax Period 2018-19, the respondent issued pre-intimation in Form GST DRC 01A dated 06.12.2023 calling upon the petitioner to pay a sum of Rs.1,15,15,27,040/- together with applicable interest under Section 73(5) of the CGST/KGST Act, 2017. The petitioner having submitted a reply dated 14.12.2023, the respondent issued a Show Cause Notice (SCN) dated 29.12.2023 under Section 73(1) of the CGST/KGST Act calling upon the petitioner to pay a sum of Rs.90,82,01,601/- together with interest and penalty. The petitioner submitted a detailed reply dated 29.01.2024 and attended personal hearing and filed written submissions pursuant to which the respondent proceeded to pass the impugned order dated 22.02.2024 under Section 73(9) of the CGST/KGST Act confirming the demand made in the SCN and calling upon the petitioner to pay a sum of Rs.30,37,84,642/- towards tax together with interest of Rs.29,14,02,162/- and penalty of Rs.3,03,78,464/- to the respondent. Aggrieved by the impugned order, the petitioner is before this Court by way of the present petition.

3. Heard learned Senior Counsel for the petitioner and learned HCGP for the respondents and perused the material on record.

4. In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned Senior Counsel for the petitioner invited my attention to the impugned order in order to contend that the reasoning and findings recorded by the respondent in relation to Issue No.2 pertaining to allegations of wrong availment and utilization of excess Input Tax Credit (ITC) of Rs.20,00,82,381/- due to incorrect ITC claimed in GSTR-3B vis-à-vis as available in GSTR-2A are erroneous and contrary to the material on record and the same deserve to be quashed. It was submitted on instructions that insofar as the remaining issues and findings recorded against the petitioner in the impugned order are concerned viz., non-payment of GST on corporate guarantee, liability to pay tax on cross-charges received towards facilities and other expenses, ITC with regard to promotion expenses held to be ineligible as per Sections 16 and 17 of the CGST/KGST Act, denial of reduced rate of tax at 0.1% for merchant exports, wrong claim of refund on export in Invoice Value instead of Shipping Bill resulting in excess refund, liability to pay under Reverse Charge Mechanism (RCM) for import of services and ITC with respect to Doctor consulting and patient counseling, which are alleged to be restricted under Section 17 of the CGST/KGST Act, the impugned order and the findings recorded by the respondent in this regard and to the said extent being erroneous and contrary to law and facts and without taking into account or consideration the relevant statutory provisions, Circulars, Notifications etc., and the judgments relied upon by the petitioner, the same deserve to be set aside and the matter remitted back to respondent No.3 – Adjudicating Authority for reconsideration afresh and in accordance with law.

5. Per contra, learned HCGP for the respondents would reiterate the various contentions urged in the statement of objections and submits that there is no merit in the petition and the same is liable to be dismissed.

6. I have given my anxious consideration to the rival submissions and perused the material on record.

7. A perusal of the material on record will indicate that as noticed above, the respondents have answered Issue No.2 relating to alleged wrong availment of utilization of excess ITC due to incorrect ITC claimed in GSTR – 3B vis-à-vis as available in GSTR-2A and thereby confirmed the demand of Rs.20,00,82,381/-together with interest and penalty and called upon the petitioner to pay a total sum of Rs.41,21,69,705/- in this regard by holding as under:

“2. ITC VERIFICATION.

Wrong availment and utilization of Excess Input tax credit of Rs.20,00,82,381/ due to the incorrect ITC CLAIMED In 3B VIS-A-VIS as available in GSTR-2A:

Audit’s detection: During the course of Audit on verification of the inward supply register, input tax claimed and availed details in GSTR-3B VIS-A-VIS GSTR-2A for the tax period April- 2018 to March-2019, some of the invoices are not reflecting in GSTR-2A, which resulted in excess availment of input tax credit This is not admissible under the provision of Section 16(2) of the Act and the details are as under:

–

The RTP is advised to pay the same.

Reply Filed:

• • Vide this Para, it is alleged that, Annexure 8 of the reply to DRC 01 A is not submitted to the office or uploaded in the common portal along with the reply in the Part-B DRC-01A. Accordingly, the contention of the RTP cannot be considered and the RTP is advised to pay the same. Hence, a demand of Rs.20,00,82,381/- is proposed along with interest of Rs.19,20,79,085/- and penalty of Rs.2,00,08,238/-
  • At the outset we would like to reiterate our submissions in the below paragraphs and also we are attaching

– Details of imports, procurements made from SEZ along with copies of Bill of Entry as Annexure – 13

– Copy of the notice and our reply to ASMT-10 as Annexure-14

• • We understand that your goodself has arrived at this observation by comparing the ITC as reported in GSTR 30 under Table 4(A)(5) with ITC as appearing in GSTR 2A.
  • The reconciliation of ITC values reported is as follows:

• • From the above table, it is evident that there is no excess ITC availed by the Noticee and the difference is merely due to wrong disclosure of ITC on import of goods and on procurements made from SEZ units in GSTR 3B.
  • The Assessee states that the ITC related to import of goods during July 2018 (Rs.7,73,73,105/-) and on goods procured from SEZ units during the financial year was wrongly reported in GSTR 3B under ‘All other ITC in Table 4(A)(5) instead of Table 4(A)(1). Towards this, the Noticee is enclosing the details of imports, procurements made from SEZ along with copies of Bill of Entry. Further, this error was corrected by us in the annual returns i.e., GSTR 9 filed for the relevant period by correctly reporting the input tax credit under ‘Import of goods (including supplies from SEZ)’ in Table 6E.
  • The Assessee submits that this issue was already picked up and verified by Assistant Commissioner of Commercial Taxes, LGSTO-25, by issuance of ASMT-10 dated 19.10.2023. We had submitted our reply vide ASMT-11 on 27.10.2023 and explained the reconciliation of the input tax credit. Basis our reply and submissions made, there were no proceedings initiated by the Ld. Officer. Copy of the notice and our reply are collectively enclosed as mentioned above for your ready reference.
  • Accordingly, we humbly submit that the errors are only related to reporting in returns but there is no excess availment of ITC. Also, as this issue was already verified by the jurisdictional officer, we submit that the demand is wrongly proposed and needs to be dropped.

Final Outcome:

The Noticee has claimed that they have wrongly reported in GSTR-3B of July-2018 relating to import of goods as all other ITC and this when checked with the GSTR-3B of Jul-2018, the all other ITC claimed in Jul-2018 3B is Rs.4304997/- and not Rs.7,73,73,105/. Hence, the claim of the Noticee can not be accepted. Further, input relating to procurements from SEZ units is claimed to have been shown in all other ITC in GSTR-3B. But have not mentioned in which GSTR-3B such claims have been made.

Here it is pertinent to note that, GSTR-9 is not a return for the purpose of availing input tax credit and any missed out input tax credit, has to be claimed as per Sec 16(4) within the permitted time, that is by October-20^th of 2019.

Any claim of input tax credit not put forth in the GSTR-3B return in the applicable columns cannot be claimed later in the GSTR-9 submitted on 30-12-2020.

Further, the Noticee has claimed in the specific box No.4A(1) of GSTR 3B an input tax credit relating to import of goods of Rs.66.88 Crores and now claiming the same by reporting through GSTR-9 is not as per law.

The Noticee claims that, the LGSTO has issued ASMT-10 regarding the same issue and the Noticee has replied and has ask the undersigned to drop the issue. But it can be observed that the Noticee has not submitted ASMT-12 as per Rule-99(3) of KGST rules, which is usually issued by the proper officer, if the reply submitted is acceptable. Hence, just because an ASMT-10 has been issued, the Act of belatedly claiming the input tax credit through GSTR-9 cannot be accepted. Hence based on the above discussion the Noticee is advised to pay back the wrongly claimed input tax credit along with the applicable interest and penalty. Which is computed as below:

You are advised to pay the above liability.”

8. A perusal of the aforesaid findings recorded by the respondents will clearly indicate that the same are contrary to the facts and law inasmuch as the respondents failed to consider and appreciate that GSTR-2A as it was conceived was designed to take in only details of suppliers in India and their supplies and it did not take in details relating to import of goods and services and SEZ procurements. The respondents also failed to consider and appreciate that for the period April, 2018 to March, 2019, petitioner entered the RCM payments for such procurements in GSTR-3B and during the said period, the above payments were not in GSTR-2A by design of the system itself and GSTR-3B returns were filed in September, 2018, which reflected most of the credits and credits were also mentioned in GSTR-09 in Table 6E filed before 31.10.2020; as per Central Government Advisory dated 29.08.2020 Import details and supplies from SEZ were getting reflected in GSTR-2A only from August, 2020 and as per Press Release dated 19.10.2021, the respondents clarified the position that GSTN as functionality to get details from ICE GATE and in view of introduction of Section 16(2)(aa) w.e.f., 01.01.2022, there was no requirement of matching with GSTR-2A.

9. The respondents also failed to consider and appreciate that the difference is due to wrong disclosure of ITC on import of goods and on procurement made from SEZ in GSTR-3B for the month of July (rectified as September) under “All other ITC” in Table 4(A)(5) instead of Table 4(A)(1), which is meant for import of goods and the error was rectified in GSTR-9 in Table 6E; further, as per Advisory dated 29.08.2020 and 19.10.2021 import details and supplies from SEZ are not reflected in GSTR-2A and ITC cannot be denied based on typographical error in reply to the SCN (mentioned as July instead of September); so also, as per Rule 36(1)(d) of the CGST/KGST Rules, Bill of Entry is the relevant document for availing ITC of Tax paid on import of goods and there is no requirement of matching with GSTR-2A as Section 16(2)(aa) is introduced w.e.f., 01.01.2022. Under these circumstances, I am of the considered opinion that that the reasoning and findings recorded by the respondent in relation to Issue No.2 pertaining to allegations of wrong availment and utilization of excess Input Tax Credit (ITC) of Rs.20,00,82,381/- due to incorrect ITC claimed in GSTR-3B vis-à-vis as available in GSTR-2A are erroneous and contrary to the material on record and the same deserve to be quashed.

10. Insofar as the impugned order containing the reasoning and findings on remaining issues recorded against the petitioner are concerned viz., non-payment of GST on corporate guarantee, liability to pay tax on cross-charges received towards facilities and other expenses, ITC with regard to promotion expenses held to be ineligible as per Sections 16 and 17 of the CGST/KGST Act, denial of reduced rate of tax at 0.1% for merchant exports, wrong claim of refund on export in Invoice Value instead of Shipping Bill resulting in excess refund, liability to pay under Reverse Charge Mechanism (RCM) for import of services and ITC with respect to Doctor consulting and patient counseling, which are alleged to be restricted under Section 17 of the CGST/KGST Act, I am of the view that the impugned order and the findings recorded by the respondent in this regard and to the said extent being erroneous and contrary to law and facts and without taking into account or consideration the relevant statutory provisions, Circulars, Notifications etc., and the judgments relied upon by the petitioner as well as its submissions/written submissions and consequently, in order to provide one more opportunity to the petitioner in this regard, the same deserve to be set aside and the matter remitted back to respondent No.3 – Adjudicating Authority for reconsideration afresh and in accordance with law.

11. In the result, I pass the following:

ORDER

i) The petition is hereby partly allowed.

ii) The Impugned Order-in-Original 4.7/DGSTO-4/BIO/2023-24 DCCT(A) dated 22.02.2024 enclosed at Annexure-A to the Writ Petition to the extent it has confirmed the demand of excess availment of ITC to the tune of Rs.20,00,82,381/- along with penalty of Rs.20,08,238/ and the interest levied thereon, on such ITC, is hereby set aside.

iii) The Impugned Order No.DCCT(A) 4.7/DGSTO-4/BIO/2023-24 dated 22.02.2024 enclosed as Annexure-A to the Writ Petition to the extent it relates to the remaining following issues are set aside and remanded back to the Respondent No. 3, Deputy Commissioner of Commercial Taxes, Audit-4.7, Koramangala for reconsideration afresh in accordance with law as expeditiously as possible:

• • Non-payment of GST on Corporate Guarantee;
  • Liability to pay tax on cross charges received towards facilities and other expenses;
  • ITC with regard to promotion expenses held to be ineligible as per Section 16 and 17 of the Central Goods and Services Tax Act, 2017;
  • Denial of reduced rate of tax at 0.1% for merchant export;
  • Wrong claim of refund on export invoice value instead of shipping bill resulting in excess refund;
  • Liability to pay under RCM for import of services; and
  • ITC with respect to Doctor consulting and patient counseling, which are alleged to be restricted under Section 17 of the Central Goods and Services Tax Act, 2017.