High Court Remands ITC Mismatch Case (GSTR-2A vs 3B) on Condition of 10% Pre-deposit

High Court Remands ITC Mismatch Case (GSTR-2A vs 3B) on Condition of 10% Pre-deposit

Issue

1. ITC Denial: Whether Input Tax Credit (ITC) can be denied due to a mismatch between GSTR-2A and GSTR-3B caused by technical glitches (lack of synchronization between GST portal and ICEGATE).

2. Extended Limitation: Whether the Revenue can invoke the extended period of limitation under Section 74 (alleging fraud/suppression) when the discrepancy arose from a system error during the initial GST period (July 2017 – March 2018).

3. Validity of Order: Whether an assessment order should be quashed if the assessee failed to reply on the merits of the allegation, relying only on legal arguments.

Facts

• Period: July 2017 to March 2018 (Implementation phase of GST).

• The Dispute: The petitioner claimed Input Tax Credit on IGST paid on imports. A mismatch occurred between the ITC claimed in GSTR-3B and the data reflected in GSTR-2A.

• Reason for Mismatch: The assessee argued this was due to a technical glitch: the GST portal was not fully synchronized with the ICEGATE portal (Customs), preventing the auto-population of credit.

• Show Cause Notice (SCN): The Department issued an SCN based on an audit report, invoking the extended period of limitation under Section 74.

• Assessee’s Error: In their reply to the SCN, the assessee focused solely on legal submissions (challenging the limitation period and clarity of notice) and failed to address the factual merits of the discrepancy.

• Impugned Order: Consequently, the authority confirmed the demand, noting there was no factual rebuttal.

Decision

• Assessee’s Failure: The High Court noted that the challenge to the order was initially weak because the assessee had not provided a reply on the merits, leaving the authority with no option but to confirm the demand.

• Remand for Justice: However, recognizing that the issue stemmed from the initial GST transition period and technical difficulties, the Court decided to give the assessee another opportunity to prove their case on facts.

• Condition Imposed: The impugned order was quashed and the matter remitted back to the authority for fresh adjudication. This relief was granted subject to the condition that the assessee deposits 10% of the disputed tax from their Electronic Cash Ledger within 30 days. [In favour of assessee/Matter remanded]

Key Takeaways

• Reply on Merits is Mandatory: Relying solely on technical legal arguments (like “limitation period”) without explaining the factual discrepancy (the “why” behind the mismatch) is a risky strategy. Always address the core allegation.

• Transitional Glitches: Courts are generally lenient regarding errors occurred during the initial phase of GST (2017-18), provided there is proof of technical glitches (like ICEGATE sync issues).

• Pre-deposit for Remand: If an assessee bypasses the statutory appeal route and approaches the High Court directly due to a botched reply, the Court often imposes a pre-deposit condition (similar to the 10% required for statutory appeals) to ensure bona fides.