Bangalore Steel Distributors vs. Assistant Commissioner (Karnataka HC)

In this notable ruling from early 2026, the Karnataka High Court reinforced that a tax officer cannot “mechanically” reject Input Tax Credit (ITC) if the taxpayer provides evidence of supplier compliance. The court emphasized that the right to a “Speaking Order” is a cornerstone of natural justice under Section 75 of the GST Act.

The Legal Issue

Is an assessment order valid if the adjudicating authority ignores specific evidence (such as GSTR-2A reflection and supplier filings) and fails to address the taxpayer’s detailed replies?

Facts of the Case

The Claim: The petitioner (Bangalore Steel Distributors) asserted that its purchases were genuine, made against valid tax invoices from a registered supplier.
Evidence of Compliance: To prove the legitimacy of the ITC, the petitioner submitted that:
1. The supplier had filed GSTR-1 (declaring the sale).
2. The supplier had filed GSTR-3B (paying the tax).
3. The transaction was correctly reflected in the petitioner’s GSTR-2A.
The “Non-Speaking” Order: Despite these submissions, the Assistant Commissioner issued an order that completely ignored the petitioner’s explanations. The authority failed to provide a reasoned analysis of why the credit was being denied, essentially passing a “non-speaking” order.

The Decision

The High Court ruled in favour of the assessee, setting aside the demand and remanding the matter:

Breach of Natural Justice: Under Section 75(4) of the CGST/KGST Act, any order resulting in an adverse decision must be preceded by a personal hearing and must be a “speaking order” (one that contains reasons).
Duty to Adjudicate on Merits: The Court noted that the petitioner’s assertions regarding the valid invoices and the 2A reflection remained “uncontroverted” on the record. The officer was legally bound to verify these specific claims rather than ignoring them.
Fresh Opportunity: The Court set aside the Order-in-Original (OIO) and directed the petitioner to appear before the authority on March 18, 2026, with the liberty to produce fresh documents to prove the genuineness of the transactions.

Key Takeaways for Taxpayers

GSTR-2A is a Facilitator: As per various High Court rulings (including this one and Diya Agencies), the non-reflection of an invoice in GSTR-2A is not a “death blow” to your ITC claim if you can prove the transaction is otherwise genuine.
Burden of Proof: While the burden of proof is on the taxpayer, once you provide invoices and show that the supplier has filed their returns, the “onus” shifts back to the Department to prove that the transaction was fraudulent.
Challenge “Cryptic” Orders: If you receive an order that says “Reply not acceptable” without explaining why, it is a violation of Section 75. You have the right to move the High Court to have such an order set aside for being “non-speaking.”

HIGH COURT OF KARNATAKA

Bangalore Steel Distributors

Assistant Commissioner of Central Tax^*

S Sunil Dutt Yadav, J.

WRIT PETITION NO. 2175 OF 2026 (T-RES)

FEBRUARY 19, 2026

Santosh Sagar Kapilavai, Adv. for the Petitioner. Akash Shetty, Adv. and Hemakumar, AGA for the Respondent.

ORDER

1. The petitioner has called in question the Order-in-Original at Annexure-G. The petitioner has also sought for issuance of writ of mandamus to direct the Assistant Commissioner of Commercial Taxes i.e. , respondent No.3 to produce before this Court, the particulars of transactions undertaken by M/s. Shree Shyama Alloys Steel along with the petitioner herein.

2. Learned counsel for the petitioner submits that the order of adjudication passed does not take note of submissions of the petitioner as detailed at paragraph No.5, it is submitted that the petitioner had specifically asserted that purchases were made against valid tax invoices issued by the registered supplier and to demonstrate the same, the petitioner has made various assertions which have not been taken note of by the authority.

3. Insofar as such assertion, the same remains uncontroverted. In light of the same, the order at Annexure-G is set aside. Matter is remitted for reconsideration. Petitioner may be afforded fresh opportunity of hearing as is permissible.

4. Further, learned counsel for the petitioner submits that the supplier has filed GSTR-1 and 3B Returns and same are reflected in GSTR-2A of the petitioner. This submission of the petitioner may be taken note of for the present, however, such submission is subject to adjudication before the authority.

5. Accordingly, petition is allowed. All contentions are kept open. Petitioner to appear before respondent No.1 without further notice on 18.03.2026 and is at liberty to produce fresh documents.