Unreconciled GST Return Differences Require Fresh Adjudication: GSTAT Lucknow Remands Demand

Nitin Bakers Private Limited Vs Vijay Singh Visen (GSTAT Lucknow)

Summary: The GST Appellate Tribunal, Lucknow State Bench, set aside the adjudication and first appellate orders confirming a total demand of ₹56,24,458.40 against Nitin Bakers Private Limited for FY 2018-19 and remanded the entire matter to the Proper Officer for fresh adjudication and verification. The appellant manufactured and sold bakery products, including bread, buns and rusk, and reported both exempt and taxable supplies. Proceedings arising from scrutiny of returns concerned three discrepancies: alleged excess ITC on comparison of GSTR-3B with GSTR-2A, a difference of ₹25,93,217.12 between GSTR-9 and GSTR-9C, and alleged short reversal under Rules 42 and 43. The total demand comprised tax of ₹26,47,563.40, interest of ₹26,62,217 and penalty of ₹3,14,678. The adjudication order was passed ex parte, and the first appeal was also dismissed ex parte after the appellant failed to substantiate its grounds before the appellate authority.

The appellant argued that the authorities compared gross return figures without considering ITC reversals already recorded in GSTR-3B. It submitted that the GSTR-9/GSTR-9C difference reflected the different nature of the figures being compared, including the effect of reversals, rather than unpaid output tax, and that its explanation in Table 10 of GSTR-9C had been ignored. Against the alleged short reversal, it relied on reversals of ₹19,75,422.62 reflected in GSTR-9 and ₹29,48,853 in Table 4(B) of GSTR-3B. It also challenged the quantification of interest and penalty, the absence of proper examination of statutory records, and dismissal of the first appeal without an independent decision on merits. The Revenue defended the orders, emphasising the appellant’s failure to produce primary evidence despite repeated opportunities, the requirement concerning actual payment of tax under Section 16(2)(c), and the absence of records distinguishing specific credit from common credit.

The Tribunal found that both lower authorities had failed to conduct a substantive reconciliation of the accounting records. In relation to the alleged excess ITC, the authorities had not verified the net credit position after accounting for reversals. Referring to the decisions in Manoja Kumar Nayak and Oasys Cybernetics, it emphasised that return figures could not be considered in isolation and that adjustments already made had to be examined before confirming a demand. For the ₹25,93,217.12 discrepancy, the Tribunal required independent verification of sales ledgers, invoices and financial books instead of a simple comparison of two portal fields. It further found that the Rule 42 demand had treated the entire ITC as common credit without first segregating specific credit and identifying the actual common-credit pool. Holding that the orders suffered from inadequate factual verification and non-application of mind, the Tribunal allowed the appeal by way of remand and directed the appellant to submit all documents required for verification. The order requires fresh determination of liability; it does not grant final deletion of the disputed tax, interest and penalty or expressly direct refund of the pre-deposit.

Cases Discussed

• Manoja Kumar Nayak Vs Commissioner Goods and Services Tax and Central Excise, W.P.(C) No. 12682 of 2025, with W.P.(C) No. 12686 of 2025 (Orissa High Court) — Referred to in the Tribunal’s reasoning against raising a duplicate tax demand without giving credit for ITC already reversed. The supplied order describes the case as “M/s. Manoja Kumar Nayak v. State of Orissa WP No 12682 of 2025”.
• St. Antony Trading and Transport Pvt. Ltd. Vs Joint Commissioner (Appeals), W.P.(C) No. 14743 of 2025; 08/04/2025 (Kerala High Court) — Cited by the appellant in support of disposal of appeals on merits rather than dismissal for non-appearance.
• Oasys Cybernetics Private Limited Vs State Tax Officer, W.P. No. 9624 of 2024; 12/04/2024 (Madras High Court) — The Tribunal refers to Oasys Cybernetics for examination of the net credit position and actual revenue impact. The supplied order does not print the opposite party, proceeding number or decision date for this reference.
• Suncraft Energy Pvt. Ltd. Vs Assistant Commissioner, State Tax, MAT 1218 of 2023; 02/08/2023 (Calcutta High Court) — Cited by the appellant in support of its challenge to the ITC demand based on return mismatch.
• Bharat Mint & Allied Chemicals Vs Commissioner, Commercial Tax, Writ Tax No. 1029 of 2021; 04/03/2022 (Allahabad High Court) — Cited by the appellant in support of the natural justice challenge.
• Union of India Vs Bharti Airtel Ltd., (2022) 4 SCC 328; 28/10/2021 (Supreme Court) — Included among the authorities cited by the appellant concerning verification of ITC and statutory returns.
• Hindustan Steel Ltd. Vs State of Orissa, (1969) 2 SCC 627, as cited in the supplied order (Supreme Court) — Cited by the appellant in support of its challenge to penalty; the operative relief is remand of the entire matter.
• Commissioner of Income Tax, Madras Vs S. Chenniappa Mudaliar, (1969) 1 SCC 591 (Supreme Court) — Cited by the appellant in support of adjudication of appeals on merits.

FULL TEXT OF THE ORIGINAL GSTAT JUDGMENT/ORDER

1. Brief Facts of the Case

1.1. The present appeal has been filed by M/s Nitin Bakers Private Limited ( hereinafter referred as ‘Appellant), having GSTIN 09AABCN6538J1Z4, with its place of business at B-22, Site-5, Udyog Kunj, Panki Industrial Area, Kanpur Nagar, Uttar Pradesh, against the Order-in-Appeal dated 22.02.2025, bearing Form GST APL-04 No. ZD090325038939U dated 05.03.2025, passed by the Additional Commissioner, Grade-II (Appeal)-V, State Tax, Kanpur, whereby the first appeal preferred by the appellant was dismissed and the demand confirmed by the Proper Officer under Section 73 of the CGST/UPGST Act, 2017 (hereinafter referred as ‘Act’), was upheld.”

1.2. The appellant is engaged in the business of manufacturing and selling bakery products, including bread, buns and rusk. During the Financial Year 2018-19, the appellant declared a total turnover of Rs 5,96,73,200.70/-, out of which Rs.5,59,06,603.70/- declared as exempted supplies and Rs.37,66,597/- declared as taxable supplies attracting GST at the rate of 5%. The total output tax liability for the relevant financial year was Rs.1,88,333.88/-, comprising CGST of Rs.94,166.94/- and SGST of Rs.94,166.94/-.

1.3. The proceedings originated from scrutiny of the returns filed by the appellant for the Financial Year 2018-19 under Section 61 of the CGST/UPGST Act, 2017. During such scrutiny, the Proper Officer noticed certain discrepancies relating to Input Tax Credit (ITC), reconciliation of tax liability and reversal of ITC attributable to exempt supplies. Accordingly, a notice in Form GST ASMT-10 dated 21.11.2023, bearing Reference No. ZD091123228671J, was issued to the appellant, pointing out discrepancies under various parameters.

1.4. Subsequently, a show cause notice dated 23.12.2023, bearing Reference No. ZD091223441461N, was issued under Section 73 of the CGST/UPGST Act, 2017. The demand was primarily based on three discrepancies, namely, alleged excess availment of ITC amounting to Rs.2,589.62/- on comparison of GSTR-3B with GSTR-2A, difference of Rs.25,93,217.12/- between the tax figures reflected in GSTR-9 and GSTR-9C, and alleged short reversal of ITC amounting to Rs.51,756.66/- under Rules 42 and 43 of the CGST Rules, 2017.

1.5. Thereafter, the Proper Officer, namely the Deputy Commissioner, State Tax, Sector-27, Kanpur, passed an ex parte Order-in-Original dated 18.04.2024, bearing DRC-07 No. ZD090424237127E, confirming a total demand of Rs.56,24,458.40/-, comprising tax of Rs.26,47,563.40/-, interest of Rs.26,62,217.00 and penalty of Rs.3,14,678/-. The demand was confirmed on the basis of the discrepancies noticed in the statutory returns and the alleged failure of the appellant to furnish satisfactory clarification and supporting evidence.

1.6. Being aggrieved by the aforesaid Order-in-Original, the appellant preferred a first appeal under Section 107 of the CGST/UPGST Act, 2017, on 14.08.2024, vide ARN AD0908240356005, after depositing the prescribed pre-deposit of Rs.2,64,758/-. In the appeal, the appellant challenged the demand mainly on the ground that the alleged discrepancies arose from an incorrect comparison of figures reported in different statutory returns and that the ITC reversal already made by the appellant had not been properly considered.

1.7. The First Appellate Authority, vide Order-in-Appeal dated 22.02.2025, dismissed the appeal ex parte on account of the absence of the appellant and upheld the demand confirmed by the Proper Officer on the following findings.

• Regarding the ITC variance of Rs.22,589.62/- between GSTR-3B and GSTR-2A, the claim remained unsubstantiated by any primary documentary evidence. Citing Section 16(2) (c) of the CGST Act, the authority established that input tax credit is legally inadmissible unless the corresponding tax has been actually deposited into the government treasury.
• For the tax liability mismatch of Rs.2,593,217.12/- between Column 9 of GSTR-9 and Column 9P of GSTR-9C, the appellant provided no factual, evidentiary, or legal explanation to justify the discrepancy.
• Regarding ITC reversal of Rs.51,756.67/- under Rules 42 and 43, the appellant failed to produce compliance records. Despite being granted four distinct hearing opportunities at the appellate stage, the appellant neither produced original records nor verified any submitted assertions, making the confirmation of the demand legally mandatory.

1.8. Aggrieved by the Order-in-Appeal and the consequential confirmation of tax, interest and penalty, the appellant has preferred the present second appeal under Section 112 of the CGST/UPGST Act, 2017, seeking setting aside of the impugned orders and consequential relief in accordance with law.

2. Grounds of Appeal

The appellant has challenged the impugned Order-in-Appeal on the following grounds:

2.1. The appellant has submitted that the impugned Order-in-Appeal is contrary to the facts and circumstances of the case and the provisions of the CGST/UPGST Act, 2017. The First Appellate Authority failed to properly appreciate the statutory returns and reconciliation statements and upheld the demand without examining the actual nature of the discrepancies pointed out by the Proper Officer.

2.2. The appellant has contended that the demand of Rs. 2,589.62 towards alleged excess ITC was raised merely on comparison of GSTR-3B with GSTR-2A, without considering the ITC reversed in GSTR-3B. The appellant has submitted that the Department’s own figures reflect lower availment of ITC under the CGST and SGST heads and that the demand was confirmed without any proper verification of the net ITC position.

2.3. The Appellant further submitted that the major portion of the disputed tax demand, amounting to Rs. 25,93,217.12, arose from an incorrect comparison of Table 9 of GSTR-9 with Table 9P of GSTR-9C. It was explained that the figures appearing in the two tables were different in nature, as one reflected the tax declared and paid through returns, including the effect of ITC reversal, whereas the other reflected the tax payable on outward taxable supplies. It was argued that the difference between these figures could not automatically be treated as unpaid tax. The appellant has contended that the Department incorrectly treated such reversal as unpaid tax without considering the explanation recorded in Table 10 of GSTR-9C.

2.4. The appellant has submitted that the demand of Rs. 51,756.66 towards alleged short reversal of ITC under Rules 42 and 43 is also unsustainable. It has been contended that substantial ITC had already been reversed during the relevant financial year and that the Proper Officer failed to consider the actual reversal made in GSTR-3B while determining the alleged shortfall.

2.5. With regard to the alleged short reversal of ITC under Rules 42 and 43, the learned counsel submitted that the appellant had reversed ITC amounting to Rs. 19,75,422.62 as reflected in GSTR-9, whereas the total reversal appearing in Table 4(B) of GSTR-3B amounted to Rs. 29,48,853.00. It was argued that the reversal already made was substantially higher than the amount alleged to have been short-reversed and that the Department failed to properly reconcile these figures before confirming the demand.

2.6. The appellant has further submitted that the proceedings initiated under Section 73 were not supported by any proper finding establishing that tax had remained unpaid or short-paid or that ITC had been wrongly availed and utilised. It has been contended that the entire demand was based on an incorrect interpretation of figures appearing in different statutory returns.

2.7. The appellant has also challenged the levy of interest amounting to Rs. 26,62,217/- and penalty amounting to Rs.3,14,678.00. It has been submitted that neither the interest nor the penalty was properly quantified in the show cause notice and that the consequential demand could not survive in the absence of any legally sustainable tax liability.

2.8. The appellant has submitted that the Order-in-Original was passed ex parte without proper examination of the statutory records available on the common portal. The First Appellate Authority also failed to independently examine the grounds raised in the appeal and dismissed the matter on account of non-appearance, without recording proper findings on the merits of the dispute.

2.9. The appellant has contended that the impugned orders suffer from non-application of mind and violation of the principles of natural justice. The appellant has accordingly prayed that the Order-in-Appeal dated 22.02.2025 and the Order-in-Original dated 18.04.2024 be set aside and the entire demand of tax, interest and penalty be quashed.

2.10. In support of the above submissions, the appellant placed reliance upon the judgments in Union of India v. Bharti Airtel Ltd., (2022) 4 SCC 328, Suncraft Energy Pvt. Ltd. v. Assistant Commissioner, State Tax, MAT 1218 of 2023, Bharat Mint & Allied Chemicals v. Commissioner, Commercial Tax, Writ Tax No. 1029 of 2021, Commissioner of Income Tax, Madras v. S. Chenniappa Mudaliar, (1969) 1 SCC 591, St. Antony Trading and Transport Pvt. Ltd. v. Joint Commissioner (Appeals), W.P.(C) No. 14743 of 2025, and Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627, to support the contentions relating to verification of ITC, principles of natural justice, disposal of appeals on merits and imposition of penalty.

2.11. The learned counsel finally submitted that the disputed demand had been raised without properly examining the nature of ITC reversal, the reconciliation of statutory returns and the actual tax liability of the appellant. It was therefore prayed that the impugned Order-in-Appeal dated 22.02.2025 and the Order-in-Original dated 18.04.2024 be set aside, the entire demand of Rs. 56,24,458.40/- be quashed and consequential relief, including refund of the pre-deposit in accordance with law, be granted to the appellant.

3. Submissions of the Revenue:

3.1. The learned representative appearing on behalf of the Revenue defends the impugned orders and submits that the Order-in-Original dated 18.04.2024 passed by the Proper Officer and the Order-in-Appeal dated 22.02.2025 passed by the First Appellate Authority are perfectly legal, correct, and passed in strict accordance with the law. The Revenue places absolute reliance on the findings recorded in both the OIO and OIA.

3.2. The learned representative submits that during the scrutiny of returns under Section 61 of the Act, explicit discrepancies were noticed across multiple parameters, including excess availment of Input Tax Credit (ITC) and a clear short reversal of ITC attributable to exempt supplies under Rules 42 and 43 of the CGST Rules, 2017.

3.3. It is further submitted that despite being granted ample and fair opportunities at both the adjudication and appellate stages including four distinct hearing opportunities before the First Appellate Authority the Appellant chose not to appear and completely failed to file any written explanation or primary documentary evidence to clarify these mismatches.

3.4. Regarding the Rule 42 demand, the learned representative contends that in the absence of any statutory records, bifurcated details, or ledger accounts being produced by the taxpayer to substantiate what constituted ‘specific credit’ versus ‘common credit,’ the Adjudicating Authority had no alternative but to act upon the metrics visible on the common portal. The Appellant cannot now challenge the lack of physical verification when they themselves failed to comply with the statutory notices issued in Form GST ASMT-10 and Form GST DRC-01.

3.5. The learned representative concludes that since the input tax credit is legally inadmissible under Section 16(2)(c) unless the tax has actually reached the government treasury, and since the Appellant failed to produce compliance records or verify their assertions, the demand for tax, interest, and penalty was legally mandatory.

3.6. The learned representative contends that a massive tax liability variance of Rs. 25,93,217.12/- was detected between the tax payable figures declared in Table 9 of Form GSTR-9 and Column 9P of Form GSTR-9C. The Revenue submits that this constitutes a direct, unreconciled shortfall in output tax. The Appellant completely failed to provide any factual, evidentiary, or legal justification before the lower authorities to show how this variance was revenue-neutral or merely an accounting adjustment. Therefore, the Revenue prays that the present appeal filed by the Appellant be dismissed on merits and the confirmed demand be upheld.

4. Discussion and Findings

4.1. We have carefully examined the grounds of appeal, the impugned Order-in-Appeal, the primary Order-in-Original, and the statutory returns filed by the Appellant Forms GSTR-3B, GSTR-2A, GSTR-9, and GSTR-9C for the Financial Year 2018-19. We have also analyzed the judicial precedents relied upon by the Appellant. We find that both the lower authorities adjudicated these issues ex-parte without conducting a physical or substantive reconciliation of the primary accounting records.

4.2. The Revenue confirmed a demand of Rs. 2,589.62/- towards alleged excess ITC availment in Form GSTR-3B on comparison with Form GSTR-2A. However, Appellant’s submissions reveals that this demand was raised without verifying the net ITC position. The Appellant has contended that the Proper Officer completely ignored the ITC reversals already executed by the Appellant within Form GSTR-3B itself. The Appellant’s primary ledger entries and the Department’s own underlying data reflect a lower net availment of ITC under both the CGST and SGST heads once these self-mitigating reversals are factored in. Details of ITC availed and reversed as per table 4 of GSTR-3B during the FY 2018-2019;

4. Eligible ITC

And details of the ITC availed as per para 4 of ASMT-10 issued by the revenue is as under;

As below, there is apparent difference between ITC claimed in GSTR-3B And ITC declared in GSTR-2A/2B. Clarification along with evidence is required, otherwise why proceedings for demand/reversal thereof should not be initiated ?

4.3. We find that in the present case, the lower authorities committed a patent factual and legal error by failing to perform a net ITC verification. As per the table 4C of the GSTR-3B placed hereinabove, they failed to analyze whether the alleged excess claim was already neutralized by the Appellant’s ITC reversals.

4.4. We find substantial strength in the Appellant’s contention. The law does not permit the Revenue to look at return figures in total isolation. As established by the Hon’ble Orissa High Court in M/s. Manoja Kumar Nayak v. State of Orissa WP No 12682 of 2025, once an amount has already been accounted for or adjusted through the reversal of ITC within the statutory returns, the Department is legally prohibited from raising a duplicate tax demand on the same transaction without giving due credit for such a reversal. Similarly, the Hon’ble Madras High Court in M/s. Oasys Cybernetics Pvt. Ltd. has mandated that the Adjudicating Authority must determine the net credit position and evaluate whether any actual revenue loss has occurred before confirming a demand. By blindly matching Form GSTR-3B with Form GSTR-2A and ignoring the self-mitigating reversals already executed by the Appellant in Table 4(B) of their returns, the Proper Officer completely failed to determine the true ‘net ITC position,’ rendering the demand fundamentally unsustainable on facts.

4.5. Second and most substantial portion of the confirmed demand, amounting to Rs. 25,93,217.12/-, arises from a discrepancy between Table 9 of Form GSTR-9 (tax paid) and Table 9P of Form GSTR-9C (tax payable). The Appellant has argued that this variance is not an unpaid tax liability. Rather, it represents an accounting and reporting difference because one field reflects output tax on outward supplies, while the other incorporates the cascading effect of ITC reversals already executed through the returns. The Appellant had explicitly disclosed this explanation in Table 10 of Form GSTR-9C. The Proper Officer, however, failed to scrutinize the systemic flow of these entries and erroneously treated a balancing reconciliation figure as actual short-paid tax. Determining a tax liability requires an independent verification of sales ledgers, tax invoices, and financial books, rather than a simplistic comparison of two fields on the portal. In this regard, we are of the view that a thorough re-verification by the Proper Officer is absolutely essential to resolve this issue.

4.6. Furthermore, the Revenue alleged a short reversal of ITC amounting to Rs. 51,756.66/- under the proportional reversal mechanisms of Rules 42 and 43. On the other hand, the Appellant demonstrated via documentary records that they had reversed ITC worth Rs. 19,75,422.62/- in Form GSTR-9, and a total of Rs. 29,48,853.00/- in Table 4(B) of Form GSTR-3B during the relevant financial year.

4.7. We find that the Department has raised the Rule 42 demand by treating the entire Input Tax Credit (ITC) as ‘Common ITC’, completely discarding the mandatory requirement of identifying and segregating the actual common credit. Since the demand has been raised without verifying the nature of the credit, we find that the lower authorities issued the demand without proper verification. A valid determination under Rules 42 and 43 of CGST Rules 2017 cannot be achieved without first segregating the specific credit from the common credit, and then mapping the exact mathematical ratio of exempt-to-taxable turnover against the actual common input tax pool. This statutory exercise was entirely omitted in the impugned proceedings.

4.8. In light of the above findings, this we are of the view that the impugned order suffer from a total lack of factual verification and non-application of mind. Confirming a demand purely on system-generated discrepancies without conducting a detailed one-to-one financial reconciliation violates the spirit of law and fairness. Because a comprehensive verification of primary invoices, accounting ledgers, and return computations cannot be effectively undertaken at the any stage, it is in the interest of justice that the matter be remanded back to the Adjudicating Authority for a fresh, de novo verification. The Appellant to submit all the documents which is required for proper verification before the Adjudicating Authority.

Order

For the reasons discussed above, the impugned Order-in-Appeal dated 22.02.2025 passed by the Additional Commissioner, Grade-II (Appeal)-V, State Tax, Kanpur, and the primary Order-in-Original dated 18.04.2024 passed by the Deputy Commissioner, State Tax, Sector-27, Kanpur, are hereby set aside.

The entire matter is remanded back to the Adjudicating Authority (Proper Officer) for a fresh, de novo adjudication and proper verification in accordance with the law.

The present Appeal is accordingly allowed by way of remand.