10% Profit Added to Alleged Unaccounted Purchases: GSTAT Bengaluru Quashes GST Demand

Summary: The GST Appellate Tribunal, Bengaluru Bench, in Sandvik Coromant India Private Limited v. Commissioner of Commercial Taxes, Karnataka, decided on 14 October 2026, examined a GST demand arising from discrepancies in input tax credit, e-way bills, purchase returns and credit notes for FY 2019–20. The dispute originated from a GST audit under Section 65, following which the department proposed recovery of ₹36,97,638 and subsequently confirmed tax of ₹33,41,760 with interest and penalty. The Tribunal partly allowed the taxpayer’s appeal after examining reconciliation statements, invoices, purchase records and other supporting evidence. On the GSTR-2A and GSTR-3B mismatch, the Tribunal allowed ITC of ₹3,44,974 out of the disputed ₹3,96,226, recognising that non-reflection of an invoice in GSTR-2A was not, by itself, conclusive for FY 2019–20. However, it sustained disallowance of ₹51,255 relating to four invoices for which sufficient evidence of compliance with the statutory ITC conditions was unavailable. The decision distinguished reporting discrepancies from the substantive burden of establishing eligibility under Sections 16 and 155.

1. Introduction: Can GST Demands Be Sustained Without Examining Evidence?

Discrepancies between GST returns, e-way bills and accounting records frequently form the basis of tax demands during audit and adjudication proceedings. However, a difference appearing in statutory data does not necessarily establish tax liability. Where a taxpayer submits reconciliation statements, invoices and supporting records, these documents must be examined before drawing adverse conclusions. This issue came before the GST Appellate Tribunal, Bengaluru Bench, in Sandvik Coromant India Private Limited v. Commissioner of Commercial Taxes, Karnataka, decided on 14 October 2026. The dispute involved input tax credit mismatches, alleged unaccounted purchases, interest on ITC reversal and credit notes not reflected in GSTR-1. The decision highlights the importance of examining the actual transactions and available evidence before confirming a GST demand.

2. Background of the Dispute

The case arose from a GST audit conducted under Section 65 for the financial year 2019–20. During the audit, the department identified discrepancies relating to input tax credit, e-way bills, purchase returns and credit notes. A show-cause notice dated 3 April 2024 proposed recovery of tax amounting to ₹36,97,638, along with applicable interest and penalty. Although the taxpayer submitted explanations and supporting documents, the adjudicating authority passed an order dated 29 June 2024 confirming a tax demand of ₹33,41,760, together with interest and penalty. The taxpayer challenged the order before the First Appellate Authority but did not obtain the relief sought. The matter subsequently reached the GST Appellate Tribunal, which examined the disputed demands in light of the documentary evidence and partly allowed the appeal.

3. Principal Issues Before the Tribunal

The appeal involved four principal disputes. The first concerned disallowance of ITC amounting to ₹3,96,226 due to differences between GSTR-2A and GSTR-3B. The second related to a tax demand of approximately ₹28.45 lakh arising from 46 e-way bills that the department considered evidence of unaccounted inward supplies. The department had treated these transactions as deemed outward supplies under Section 35(6), after applying a gross profit margin of 10%. The third issue concerned interest of ₹27,530 on ITC reversed in connection with purchase returns. The fourth involved a tax demand of ₹99,718 relating to credit notes that were not reported in GSTR-1. The Tribunal was required to examine whether these demands, along with the consequential interest and penalties, were supported by the statutory provisions and the evidence available on record.

4. Can ITC Be Denied Merely Because an Invoice Is Missing From GSTR-2A?

One of the central questions was whether ITC could be disallowed solely because the corresponding invoice was not reflected in GSTR-2A. The dispute related to FY 2019–20, a period preceding the introduction of Section 16(2)(aa), which became effective from 1 January 2022. The Tribunal examined the relevant invoices, reconciliation statements, GSTR-2A records and bills of entry furnished by the taxpayer. It recognised that non-reflection of an invoice in GSTR-2A could not, by itself, establish ineligibility during the relevant period. Accordingly, the Tribunal allowed ITC of ₹3,44,974 out of the disputed amount of ₹3,96,226. However, it sustained disallowance of ₹51,255 relating to four invoices for which the taxpayer could not adequately establish compliance with the statutory conditions. The ruling therefore distinguishes a reporting mismatch from a failure to satisfy the substantive requirements for claiming ITC.

5. GSTR-2A Is a Verification Tool, Not Conclusive Evidence of ITC Ineligibility

The Tribunal examined the role of GSTR-2A in determining ITC eligibility for the period under dispute. Referring to the principles discussed in Union of India v. Bharti Airtel Ltd., it recognised that GSTR-2A functioned as a facilitative mechanism and that taxpayers were required to determine eligible credit from their own records and supporting documents. In the present case, certain invoices appeared in different tax periods, some invoice references required reconciliation with multiple underlying documents, and IGST paid on imports was supported by bills of entry despite the relevant amounts not appearing in GSTR-2A. The Tribunal considered these explanations alongside the documentary evidence. Its findings demonstrate that differences in auto-populated return data must be examined in the context of the actual transactions. At the same time, the taxpayer remains responsible for establishing compliance with the applicable conditions under Section 16.

6. Section 16(2)(c) and Section 155: The Taxpayer’s Burden of Proof

Although the Tribunal granted relief in respect of substantially reconciled ITC, it did not treat the absence of a mandatory GSTR-2A matching requirement as an exemption from the other conditions prescribed under Section 16. Section 16(2)(c) requires that the tax charged on the relevant supply must have been paid to the Government, while Section 155 places the burden of establishing ITC eligibility on the person claiming the credit. The Tribunal considered the principles discussed in Bhandari Scrap Traders v. Union of India and State of Karnataka v. Ecom Gill Coffee Trading (P) Ltd. while evaluating the taxpayer’s evidence. In relation to four invoices involving ITC of ₹51,255, the taxpayer could not furnish sufficient supporting material, including the relevant certificates contemplated under Circular No. 183/15/2022-GST. The Tribunal therefore sustained the disallowance. This part of the decision is particularly significant because it makes clear that relief from a GSTR-2A mismatch does not automatically establish entitlement to ITC.

7. Can E-Way Bill Data Alone Establish Unaccounted Purchases?

A substantial portion of the disputed demand arose from 46 e-way bills that the department alleged were not supported by corresponding entries in the taxpayer’s books. On that basis, the department treated the transactions as unaccounted inward supplies and proceeded to determine tax on presumed outward supplies. The taxpayer disputed the allegation and furnished a detailed reconciliation linking the e-way bills with purchase invoices and accounting entries. On examining the records, the Tribunal found that all 46 e-way bills were traceable to transactions duly recorded in the purchase books. The allegation of unaccounted purchases was therefore not supported by the evidence. Consequently, the Tribunal set aside the related tax demand of approximately ₹28.45 lakh. The ruling demonstrates that e-way bill information may justify verification, but the final determination must account for the taxpayer’s invoices, books and reconciliation statements.

8. Section 35(6): The Requirement to Establish Unaccounted Goods

Section 35(6) provides for determination of tax where a registered person fails to account for goods or services in accordance with Section 35(1). The provision permits tax to be determined as though such goods or services had been supplied, subject to the applicable statutory procedure. Its application, however, depends upon establishing that the relevant transactions have not been properly accounted for. In the present dispute, the department invoked Section 35(6) in relation to the 46 e-way bills identified during the audit. The taxpayer’s reconciliation and purchase records demonstrated that the underlying transactions were already reflected in its books. Once the Tribunal accepted these records, the factual basis for treating the goods as unaccounted was no longer sustainable. The consequential demand was therefore set aside. The decision underlines the importance of establishing the underlying accounting failure before invoking the deeming consequences of Section 35(6).

9. Can Outward Supplies Be Estimated by Adding a 10% Gross Profit Margin?

The department had estimated the value of alleged outward supplies by adding a 10% gross profit margin to the value of the inward supplies identified through the disputed e-way bills. This calculation proceeded on the assumption that the goods had been purchased without being recorded in the books and subsequently supplied without payment of GST. The resulting tax demand amounted to approximately ₹28.45 lakh. The taxpayer, however, established through reconciliation statements, invoices and purchase records that the underlying inward transactions had been duly accounted for. The Tribunal accepted this evidence and rejected the allegation of unaccounted purchases. As a result, the estimated outward supply demand also failed. Significantly, the Tribunal did not separately decide whether a 10% gross profit addition would be permissible in a case involving genuinely unaccounted goods. Its decision rested on the absence of the factual foundation necessary to sustain the demand.

10. Interest on ITC Reversal: The Importance of Examining Actual Utilisation

The Tribunal also considered an interest demand of ₹27,530 under the KGST Act in connection with ITC reversed against purchase returns. The department had alleged that the reversal was not made within the prescribed period and sought interest accordingly. The taxpayer contended that sufficient credit had remained available in its electronic credit ledger and disputed the basis for charging interest. The Tribunal examined the circumstances surrounding the reversal and the payment already made through Form DRC-03 on 14 March 2024. It ultimately set aside the disputed interest and consequential penalty while directing appropriation of the tax amount already paid. The finding highlights the need to examine the relevant facts, including the treatment and utilisation of credit, before determining interest liability. It should not, however, be read as a general ruling that every delayed ITC reversal is exempt from interest, since liability depends on the applicable provisions and the circumstances of the particular case.