Summary: GST notices arising from differences between input tax credit (ITC) claimed in GSTR-3B and credit appearing in GSTR-2A or GSTR-2B require a period-specific legal examination, accurate invoice-wise reconciliation and timely responses. For FY 2017-18 and FY 2018-19, CBIC Circular No. 183/15/2022-GST prescribes a verification mechanism involving supporting documents and supplier or CA/CMA certificates. Circular No. 193/05/2023-GST extends the relevant framework, subject to Rule 36(4) restrictions, to the period from 1 April 2019 to 31 December 2021. From 1 January 2022, Section 16(2)(aa) imposes additional conditions concerning supplier reporting and communication of invoice details. Taxpayers receiving DRC-01C intimations under Rule 88D must respond within seven days through an explanation, payment or both. Scrutiny notices in ASMT-10 require properly supported responses, while subsequent show cause notices must be addressed under Sections 73, 74 or 74A, depending on the financial year. The article explains practical reconciliation methods, treatment of timing differences, imports, reverse charge credit and supplier defaults. It also examines judicial relief granted in Abhimaani Structures and Engineering Private Limited and Rameshwar Gupta, where authorities were required to examine supporting evidence rather than rely solely on numerical mismatches. Finally, it covers first appeals, GST Appellate Tribunal proceedings, statutory pre-deposits and the importance of maintaining a complete documentary record from the earliest stage.
GST ITC Mismatch Notices: How to Reply at Every Stage from DRC-01C to GSTAT Appeal
Few GST notices are as common, or as frustrating for clients, as those arising from a mismatch between input tax credit claimed in GSTR-3B and the credit reflected in GSTR-2A or GSTR-2B. A client sees a demand for credit on purchases that were genuinely made, invoices that were properly paid for, and goods that are sitting in the godown. The natural reaction is that the department has made a mistake.
Sometimes it has. But in many cases, the outcome depends less on the merits and more on how well the reply is prepared at each stage. Having handled several of these matters, I have found that the same mistakes repeat: replies without reconciliation, missed timelines, and arguments built on the wrong legal provision for the period involved.
This article walks through each stage at which a mismatch can surface, and what a practitioner should do at each one.
First, Identify the Period
The legal position on ITC mismatches is not the same for every year, and this is the first thing to settle before drafting anything.
For periods before 1 January 2022, the law did not expressly impose the same GSTR-2B-based condition introduced from that date. However, Rule 36(4) imposed restrictions from 9 October 2019. For earlier years, CBIC Circular No. 183/15/2022-GST laid down a verification procedure for FY 2017-18 and FY 2018-19. Where the supplier-wise difference for a year exceeds Rs. 5 lakh, the recipient can produce a certificate from a Chartered Accountant or Cost Accountant confirming that the supplies were made and the tax was paid by the supplier. Where the difference is up to Rs. 5 lakh, a certificate from the supplier itself can be furnished. Circular No. 193/05/2023-GST later dealt with subsequent periods.
From 1 January 2022, section 16(2)(aa) of the CGST Act restricts credit to the details furnished by the supplier and communicated to the recipient, which in practice means GSTR-2B. For these periods, the defence is narrower. The argument is less about whether the supply was genuine and more about why the credit did not appear in GSTR-2B, and whether it appeared later.
The section under which a demand can be raised also depends on the year. For periods up to FY 2023-24, sections 73 and 74 apply. For FY 2024-25 onwards, section 74A governs, with a common time limit for fraud and non-fraud cases.
Stage 1: DRC-01C Intimation
Rule 88D, inserted from 4 August 2023, allows the GST portal to compare the ITC available in GSTR-2B with the ITC claimed in GSTR-3B for each return period. Where the excess crosses the threshold set on the system, an intimation is issued automatically in Part A of FORM GST DRC-01C.
The taxpayer must respond within seven days, either by paying the excess credit with interest through DRC-03, or by explaining the difference in Part B of DRC-01C. If the payment route is chosen, the DRC-03 must be filed on or after the date of the intimation and the cause of payment must be selected as the ITC mismatch option, not voluntary payment. If this is done wrongly, the DRC-03 cannot be linked to the intimation.
Ignoring a DRC-01C is not an option. An unanswered intimation can restrict filing of the next GSTR-1, which affects the client’s customers and quickly becomes a commercial problem.
The best reply at this stage is a short, factual explanation backed by a reconciliation. Typical valid reasons include invoices uploaded by the supplier after the GSTR-2B cut-off, credit on imports of goods, credit on reverse charge payments, and credit reclaimed after an earlier reversal.
Stage 2: ASMT-10 Scrutiny Notice
Under section 61, the proper officer may scrutinise returns and issue a notice in FORM GST ASMT-10 pointing out discrepancies. ITC mismatches for a full year are frequently raised this way.
This is the most important stage, and it is where many cases are lost. A reply that only says the credit is genuine, without numbers, will usually lead to a show cause notice. A strong reply includes an invoice-wise reconciliation between GSTR-2A or GSTR-2B and the purchase register, explaining every difference by category, along with supporting documents for material items.
Example of an Invoice-Wise ITC Reconciliation
A simple example shows how this works. Suppose a client’s GSTR-3B for a year shows ITC of Rs. 42,60,000, while GSTR-2B shows Rs. 38,10,000. The difference of Rs. 4,50,000 might be explained as follows:
- Supplier invoices of March reflected in April GSTR-2B: Rs. 2,10,000
- IGST on imports shown separately: Rs. 1,30,000
- Reverse charge tax paid in cash and claimed as credit: Rs. 70,000
- Invoices where the supplier has not filed returns: Rs. 40,000
Presented this way, the officer can see that Rs. 4,10,000 is explained on the face of the records, and only Rs. 40,000 relates to supplier default. That remaining amount can then be addressed separately, either by following up with the supplier, producing evidence of payment to the supplier, or, where the defence is weak, by paying it to close the matter.
Stage 3: Show Cause Notice
If the scrutiny reply is not accepted, a show cause notice follows under section 73, 74 or 74A, depending on the period.
For FY 2024-25 onwards, section 74A offers a useful option in non-fraud cases. If the tax and interest are paid within 60 days of the notice, no penalty is payable and the proceedings are concluded in respect of the payment covered by the statutory provision. Where part of the mismatch is genuinely indefensible, paying that part within this window and contesting the rest is often the most practical course.
The reply to the show cause notice should restate the reconciliation, deal with each allegation specifically, and request a personal hearing. Where the period is covered by Circular 183, the reply should expressly ask the officer to follow the verification procedure in the circular and offer the prescribed certificates.
Courts have repeatedly set aside orders where this procedure was ignored. In Abhimaani Structures and Engineering Private Limited, the Karnataka High Court remanded a demand for FY 2017-18 because the officer had not followed Circular 183, and noted that the adjudicating authority ought to have considered the circular even if the taxpayer had not raised it.
Stage 4: Appeal
An adverse order can be challenged before the Appellate Authority under section 107, with a pre-deposit of 10% of the disputed tax.
A second appeal now lies before the GST Appellate Tribunal under section 112. The Tribunal is operational and appeals are filed on its e-filing portal. Under the revised notification dated 30 June 2026, orders communicated before 1 May 2026 were covered by the special filing deadline of 31 July 2026. For orders communicated on or after 1 May 2026, the normal time limit of three months applies. A further pre-deposit of 10% of the disputed tax is required under section 112(8), and once it is paid, recovery of the balance is deemed stayed under section 112(9) until the appeal is decided.
Evidence missed at the earlier stages is not always lost. In Rameshwar Gupta v. Commissioner SGST, the Lucknow Bench of the GSTAT held that a mere numerical mismatch cannot by itself establish that credit is ineligible, and accepted a CA certificate produced at the Tribunal stage under Circular 183 before remanding the matter. That said, relying on late evidence is a risk, and the better course is always to build the case at the scrutiny stage.
A Practical Checklist
- Identify the financial year and the provision under which the notice is issued.
- Respond to every DRC-01C within seven days, either through Part B or a correctly tagged DRC-03.
- Prepare an invoice-wise reconciliation between GSTR-2A or 2B, GSTR-3B and the purchase register.
- Classify every difference by reason and quantify each category.
- Collect invoices, payment proofs, e-way bills and supplier confirmations for material items.
- For periods covered by Circular 183, obtain CA or supplier certificates as applicable.
- Under section 74A, consider paying the indefensible portion within 60 days of the notice.
- Track appeal deadlines and pre-deposits for both the first appeal and the Tribunal.
A Closing Thought
ITC mismatch cases are rarely won on argument alone. They are won on reconciliation. A clear, invoice-wise working submitted at the first opportunity resolves most cases before they become demands, and it remains the foundation of the case if the matter goes to appeal. The real lesson for clients is that monthly reconciliation of GSTR-2B with the purchase register costs far less than defending a notice two years later.
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Disclaimer: The views expressed in this article are personal. Readers should refer to the CGST Act, 2017, the CGST Rules, 2017, the relevant State GST Act, the applicable CBIC circulars and judicial decisions before applying any provision.
About the Author: CA Rahul R. Mohite is a practising Chartered Accountant based in Pune. He writes on income tax, GST and audit at rrmohite.in.
