Felicity Adobe LLP Vs ACIT (Karnataka High Court)
Summary: The Karnataka High Court, in Felicity Adobe LLP Vs Assistant Commissioner of Central Tax, set aside the GST adjudication order dated 24 February 2025 concerning alleged discrepancies in Input Tax Credit (ITC) adjudication and principles of natural justice. The petitioner challenged the order under Article 226 of the Constitution, contending that no opportunity of personal hearing had been provided and that the adjudicating authority failed to consider the reconciliation statement submitted with its reply dated 3 January 2025. The reconciliation at Annexure-1 sought to explain the discrepancies between GSTR-3B and GSTR-2A.
The petitioner submitted that although the adjudication order acknowledged its reply in paragraph 11.2, it did not consider the accompanying reconciliation statement while recording its findings. The order instead observed that no reconciliation statement or supporting documents had been submitted for the differential ITC claimed. The Revenue maintained that the petitioner’s reply had been referred to in the adjudication order. The controversy also involved discrepancies concerning GSTR-3B and GSTR-9. The petitioner sought an opportunity to demonstrate that the reconciliation already furnished addressed the objections raised in the show cause notice.
The High Court held that the dispute was factual and required examination of the reconciliation documents. It considered it necessary to provide the petitioner an opportunity to explain the alleged ITC discrepancies. Accordingly, the Court set aside the order dated 24 February 2025 and remitted the matter for reconsideration. The petitioner was directed to appear before the respondent on 18 May 2026 without further notice. The adjudicating authority was directed to reconsider Annexure-E along with Annexure-1, provide an opportunity to explain the reconciliation and proceed in accordance with law. All contentions were kept open. The Court did not determine the final eligibility of the disputed ITC.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
Sri. Aravind Chavan, learned counsel accepts notice for respondent.
2. Petitioner has sought to assail the order-in-original issued by the 1st respondent at Annexure-A on the premise that the order passed is in violation of principles of natural justice. Petitioner has sought for alternative relief as well.
3. It is the case of the petitioner that the order of adjudication passed did not provide an opportunity of personal hearing. During the adjudication process, the petitioner had made out reply to the show cause notice, in which reconciliation between GSTR-3B vis-a-vis GSTR-2A was attempted. Along with the reply at Annexure-E, reconciliation at Annexure-1 was provided. It is submitted that Annexure-1 if taken note of would have the effect of reconciling the alleged discrepancies.
4. Annexure-E is stated to have been submitted on 03.01.2025. It is submitted that eventually the order-in-original came to be passed on 24.02.2025 and though at para 11.2, reply of the petitioner dated 03.01.2025 has been adverted to, it is submitted that there is no reference to the attempted reconciliation at Annexure-1 while dealing with the findings.
5. Sri. Vikram Huilgol, learned Senior Counsel appearing for the petitioner submits that if the matter is remitted back, petitioner would demonstrate the reconciliation at Annexure-1 to the reply at Annexure-E, which would have the effect of meeting the grounds raised in the show cause notice.
6. Learned counsel for the revenue would point out that the reply to the show cause notice at Annexure-E on 03.01.2025 has been referred to by the authority at para 11.2.
7. It must be noticed that no doubt the reply of the petitioner has been referred to in para 11.2. During the course of discussion at para 13.6, there is an observation that the noticee has not submitted any reconciliation statement/documents for differential ITC availed between GSTR-2A and GSTR-3B for the period.
8. The issue regarding ineligible Input Tax Credit (ITC) claimed arises from the alleged mismatch in outward tax supplies and the mismatch between GSTR-3B vs GSTR-9 as referred to in para 8.5 of the impugned order. Any ineligibility in ITC claimed would relate to reconciliation between GSTR-3B and GSTR-2A. Petitioner submits that Annexure-1 enclosed along with Annexure-E would answer the reconciliation which the petitioner would demonstrate, if the matter is remitted.
9. It is necessary that the petitioner be given an opportunity of reconciliation and to point out that the alleged discrepancy regarding the availment of ITC is explained. The issue being factual and taking note of the reply at Annexure-E along with Annexure-1, it would be appropriate that the authority revisits the said reply and afford an opportunity to the petitioner to demonstrate their case as asserted in the reply at Annexure-E.
10. Accordingly, the order at Annexure-A dated 24.02.2025 is set aside. The matter is remitted for reconsideration.
11. Petitioner to appear before respondent without further notice on 18.05.2026. The authority to re-look at Annexure-E along with Annexure-1 and provide an opportunity to the petitioner to explain the reconciliation and proceed as per law. All contentions are kept open.
12. Accordingly, the petition is disposed of.
