GSTR-2A Mismatch Alone Cannot Justify ITC Demand: GSTAT Bengaluru

Summary: The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru Bench, in M/s Gajanan Nagesh Pai v. Commissioner of Commercial Taxes, Karnataka (Appeal No. APL/103/BUR/2026, decided on 12 November 2026), held that a mismatch between input tax credit (ITC) claimed in GSTR-3B and reflected in GSTR-2A cannot, by itself, justify denial of credit without invoice-wise verification and examination of the applicable statutory conditions. The dispute concerned FY 2021-22, during which the taxpayer claimed ITC of ₹28,02,000 against ₹17,30,000 reflected in GSTR-2A, resulting in a disputed difference of ₹10,72,000. The Department confirmed a total demand of ₹18,27,334, including interest of ₹6,48,134 and penalty of ₹1,07,200, without examining individual invoices or supplier records. Although the taxpayer failed to attend three appellate hearings, the Tribunal held that the Appellate Authority could not dismiss the appeal without deciding its merits under Section 107 of the CGST Act. The Tribunal further clarified that ITC eligibility for April–December 2021 required verification under CBIC Circular Nos. 183/15/2022-GST and 193/05/2023-GST, subject to the applicable Rule 36(4) restrictions, whereas January–March 2022 required application of Section 16(2)(aa) and the substituted Rule 36(4). It also held that interest under Section 50(3) could be imposed only after establishing wrongful availment and utilisation of ITC, with computation under Rule 88B(3). Accordingly, the Tribunal set aside both the adjudication and appellate orders, restored the show cause notice, and directed fresh invoice-wise verification, a personal hearing and a reasoned order. The taxpayer was granted eight weeks to submit reconciliation and supporting documents. Importantly, the Tribunal did not finally allow the disputed ITC; eligibility, tax, interest and penalty were left open for fresh determination.

GSTR-2A Mismatch Cannot, by Itself, Sustain an ITC Demand – GSTAT Bengaluru on Invoice-wise Verification, Disposal of Appeals and Interest on Disputed Credit

Introduction

A difference between input tax credit claimed in GSTR-3B and the credit reflected in GSTR-2A requires an explanation. But does that difference, without further examination, establish that the entire credit is inadmissible? Equally, if the taxpayer fails to attend the appellate hearing, can the Appellate Authority dismiss the appeal without examining the legality of the demand?

The GST Appellate Tribunal, Bengaluru Bench, examined these questions in M/s Gajanan Nagesh Pai v. Commissioner of Commercial Taxes, Karnataka, Appeal No. APL/103/BUR/2026, decided on 12 November 2026.

The Tribunal set aside both the adjudication order and the first appellate order and restored the show cause notice for fresh adjudication. Its reasoning is useful for taxpayers facing mismatch demands, particularly for financial year 2021-22. However, the order must be understood correctly: it directs verification of the credit; it does not allow the disputed credit merely because the earlier orders were defective.

This article examines the order on the basis of the judgment text supplied. Paragraph references below refer to that order.

Background of the Case

The appellant was a civil contractor executing works for the Public Works Department at Kumta, Karnataka.

For financial year 2021-22, the Department compared the following figures:

The proper officer confirmed the demand without examining individual invoices or suppliers. The adjudication order essentially reproduced the annual figures and the difference between them. The taxpayer thereafter filed an appeal but did not attend any of the three hearings and furnished no supporting documents. The Appellate Authority dismissed the appeal without deciding the demand on merits. These circumstances are recorded in paragraphs 5 to 9.

Before the Tribunal, the taxpayer produced a reconciliation, invoices, e-way bills, supplier declarations, bank statements, GSTR-2B and electronic credit ledger extracts. Some differences were attributed to B2C reporting, an incorrect recipient GSTIN and delayed reporting by suppliers. A substantial portion of the difference, however, remained unreconciled.

A Mismatch Is a Starting Point, not a Finding of Ineligibility

The principal finding appears in paragraph 40:

“A difference between Form GSTR-2A and Form GSTR-3B is where the enquiry starts. It is not where the enquiry ends.”

This observation identifies the defect in a demand based only on subtraction of two return figures. The officer must ascertain why the difference arose, examine the supporting material and apply the provisions governing the relevant period.

The Tribunal held that, for April to December 2021, the verification procedure under Circular No. 183/15/2022-GST dated 27 December 2022, read with Circular No. 193/05/2023-GST dated 17 July 2023, had to be followed. The officer was required to call for invoice-wise particulars and verify the applicable conditions of Section 16. That exercise had not been undertaken. Consequently, the demand could not stand in its existing form. This finding is recorded in paragraphs 35 to 47.

The benefit to taxpayers is therefore specific. An unexplained annual mismatch cannot replace the inquiry required by law. At the same time, a taxpayer cannot seek allowance of credit merely by pointing out that the officer failed to conduct that inquiry.

Financial Year 2021-22 Requires Two Separate Legal Tests

An important feature of this case is that the disputed financial year straddled a change in the statutory conditions for ITC.

The Tribunal distinguished the two periods as follows:

For the earlier period, the circular-based certificate procedure remained subject to the applicable five per cent restriction under Rule 36(4). It was not an unrestricted permission to claim every invoice missing from GSTR-2A. The Tribunal also noted the cumulative application of the restriction for April to June 2021. These distinctions are discussed in paragraphs 33 to 44.

A single annual comparison could not properly apply these different requirements. For this reason, the order is particularly relevant to financial year 2021-22 mismatch disputes.

Supplier Certificates Must Establish Facts, Not Merely Complete a File

The Tribunal discussed the certificate procedure under Circular No. 183/15/2022-GST. Broadly, where the supplier-wise difference exceeded Rs. 5 lakhs for the financial year, the prescribed certification was to come from a Chartered Accountant or Cost Accountant. For a difference up to Rs. 5 lakhs, the circular contemplated a supplier certificate. This discussion appears in paragraph 36.

However, the Tribunal did not accept the declarations produced before it without scrutiny. It noticed that they lacked place and date, retained mutually alternative statements without identifying the applicable situation, and contained an invoice-number discrepancy. These defects are recorded in paragraph 45.

The professional lesson is clear. A declaration should identify the transaction and explain the actual reporting error. A standard format containing every possible explanation, with none selected, does not satisfactorily establish what happened.

Later Reflection in GSTR-2B Does Not End the Inquiry

Two January 2022 invoices appeared in the taxpayer’s GSTR-2B for April 2022. The Tribunal did not treat their later appearance as sufficient to dispose of the dispute.

It directed examination of whether credit had been taken in 2021-22, in 2022-23, or in both years. That question required the monthly returns and ledger entries, not merely a copy of the later GSTR-2B. The issue is discussed in paragraph 45.

This distinction matters. The invoice date, the supplier’s reporting period and the recipient’s actual availment period may differ. Each must be identified before deciding eligibility, timing or duplication of credit.

Non-appearance Does Not Authorise Dismissal Without a Merits Decision

The Tribunal held that Sections 107(11) and 107(12) require the Appellate Authority to decide the appeal and record the points for determination, its conclusions and the reasons supporting them.

The taxpayer’s absence permitted the authority to proceed on the available record. It did not dispense with the duty to examine whether the demand had a lawful basis. As paragraph 25 states:

“The Appellant’s absence closed his chance to be heard. It did not close the appeal.”

This finding should not be mistaken for approval of the taxpayer’s conduct. The Tribunal expressly criticised the failure to respond to repeated communications. It recognised portal service under Section 169(1)(d) and rejected the suggestion that entrusting compliance to a consultant removed the taxpayer’s responsibility. These observations appear in paragraph 30.

The order thus separates two matters: the taxpayer’s failure to participate and the authority’s obligation to pass a lawful, reasoned order. Neither failure excuses the other.

Interest Requires Proof of Wrong Availment and Utilisation

The adjudicating officer had charged interest on the entire disputed credit without recording a finding on utilisation.

The Tribunal held that Section 50(3) requires examination of both wrong availment and utilisation. The officer must determine whether, when and to what extent the disputed credit was utilised and compute interest under Rule 88B (3). A demand for reversal does not, by itself, establish the amount or period for which interest is payable. This reasoning appears in paragraphs 48 to 52.

The taxpayer’s assertion that sufficient credit remained in the ledger was also not finally accepted. The Tribunal required the necessary ledger examination. Its operative direction was that any interest imposed after fresh adjudication must be supported by a computation shown in the order.

The penalty was likewise left for redetermination with reference to the tax finally found due.

What Relief Was Actually Granted?

Under paragraph 61, the Tribunal:

• Set aside the adjudication order and the first appellate order.
• Restored the show cause notice to the proper officer.
• Granted eight weeks from receipt of the order to furnish an invoice-wise reconciliation and supporting documents.
• Directed fresh verification of each invoice.
• Required a personal hearing and a reasoned order.
• Directed separate examination and computation of interest.
• Left the eligibility of every invoice and the quantum of tax, interest and penalty open.

The existing demand was therefore set aside, but the underlying dispute was not extinguished. If the taxpayer failed to file the reply within the permitted period, the officer could proceed on the available material after issuing a hearing notice.

Conclusion

The decision in Gajanan Nagesh Pai is useful for taxpayers because it rejects mechanical confirmation of ITC demands and dismissal of appeals without a merit’s examination. It requires the Department to apply the law relevant to each period, examine invoices and supporting records, and establish utilisation before levying interest under Section 50(3).

Its equally important message is that taxpayers must prove their claims. Incomplete reconciliation, defective declarations and unattended notices cannot be treated as minor matters.

The proper approach is neither automatic reversal because an invoice is missing from GSTR-2A nor automatic allowance because an invoice and payment record are produced. Eligibility must be decided on verified facts and the applicable statutory conditions. This order protects that examination; it does not dispense with it.