Bona Fide Timing Mismatch in ITC Claims: Receipt of Goods Governs Credit Eligibility

Issue

Whether Input Tax Credit (ITC) can be denied under Section 73(1) due to a mismatch where the supplier reported the sale in March 2018 (FY 2017-18) but the recipient claimed the credit in April 2018 (FY 2018-19) upon physical receipt of goods.

Facts

The Transaction: The assessee purchased goods from an out-of-state agency on March 30 and 31, 2018.
Supplier Reporting: The supplier recorded the sale and paid the tax in their March 2018 returns.
Assessee Reporting: The goods physically reached the assessee in April 2018. Consequently, the assessee claimed the ITC in their April 2018 return.
The Conflict: The GST department issued a Show Cause Notice (SCN) proposing to disallow the ITC, viewing the discrepancy between the supplier’s and recipient’s filing periods as a mismatch/tax evasion attempt.

Decision

No Intent to Evade: The Court held that this was not a case of tax evasion but a bona fide confusion arising from a “spill-over” transaction during the transition between two financial years.
Compliance with Section 16(2)(b): Under the GST Act, a taxpayer is eligible for ITC only upon the actual receipt of goods. Since the goods were received in April, the assessee was legally correct to claim the credit in that month.
Need for Reconciliation: The Court emphasized that instead of mechanical denial, the authorities should perform a reconciliation to verify that tax was indeed paid by the supplier and goods were received by the buyer.
Outcome: The matter was remanded to the assessing authority to allow the assessee to produce invoices and delivery records for verification. [In favour of assessee]

Key Takeaways

Condition of Receipt: ITC eligibility is strictly tied to the date of receipt of goods. If an invoice is dated March 31 but the truck enters your warehouse on April 2, the credit belongs to the April return.
Year-End Documentation: Maintain robust “Goods Inward Notes” (GIN) and E-way bills for year-end purchases to explain timing differences in GSTR-2A/3B reconciliations.
Mismatch vs. Evasion: A mere difference in the reporting month between a buyer and seller is a procedural timing issue, not a substantive ground for ITC denial, provided the tax has reached the government.

HIGH COURT OF KERALA

Rakkimuthu Ramesh

Assistant Commissioner of State Tax^*

ZIYAD RAHMAN A.A., J.

WP(C) NO. 34716 OF 2025

JANUARY 9, 2026

R. Muraleedharan and N. Muraleedharan Nair, Advs. for the Petitioner. Arun Ajay Shankar, G.P for the Respondent.

JUDGMENT

1. The petitioner is a registered tax payer under the provisions of CGST and KGST Act and is engaged in the business of plastic. The dispute, which is the subject matter in this writ petition, pertains to the assessment in year 2018-19. The transactions which are relevant for considering the issue involved in this case were the purchases affected by the petitioner on 30.03.2018 and 31.03.2018 from an agency outside the State. Even though the petitioner affected the purchases on the dates referred to above, the goods as per the said purchase reached the petitioner, during the month of April 2018, which falls within the financial year 2018-19. Therefore, the petitioner had included the said transaction in the monthly returns submitted for April 2018, and input tax credit was also claimed.

2. However, the supplier included the said transaction in the return submitted in March 2018 and tax was paid. In such circumstances, a notice was issued to the petitioner in ASMT-10, in the year 2022, to which the petitioner submitted a reply. Thereafter, Ext.P1 Show Cause Notice to the petitioner was issued, proposing to initiate proceedings under Sec.73(1) of the Kerala State Goods and Services Tax Act – 2017 of 26.12.2023.

3. According to the petitioner, the said show cause notice was uploaded under the tab for “additional notices,” in the web portal and consequently, the issuance of such notice did not come to the petitioner’s attention. Accordingly, the proceedings initiated as per Ext.P1 were finalised by Ext.P2 order and Ext.P3 is the demand issued based on Ext.P2. This writ petition is submitted in such circumstances, challenging Exts.P2 and P3.

4. I have heard Sri. Muraleedharan R., the learned counsel appearing for the petitioner and Sri. Arun Ajay Shankar, the learned Government Pleader for the respondents.

5. The main contention raised by the petitioner is that, the denial of input tax credit pertaining to the transactions referred to above, is not legally sustainable, as the petitioner correctly included the said transaction in the returns furnished by the petitioner during the month of April 2018, as the said goods were received by him only in the said month. Therefore, there was no willful attempt for evasion of any tax and what is required is a re-adjustment of tax, by way of reconciliation. The learned counsel for the petitioner also submits that, if an opportunity is granted, the petitioner can produce all the documents, including the original invoices, which were sought for in Ext.P1, so as to clarify this aspect and to get the assessments reconciled.

6. On the other hand, the learned Government Pleader opposes the said application, by pointing out that, several opportunities were granted to the petitioner, but the petitioner failed to provide the necessary documents to substantiate his contentions. The learned Government Pleader brought to the attention of this Court, the contents of Ext.P1, which would indicate the issuance of prior notice of the same, requiring the petitioner to produce the original invoices. However, the petitioner failed to produce the said invoices and no reply was also submitted to Ext.P1 Show cause notice. Therefore, it was pointed out by the learned Government Pleader that, this is a case in which no interference is required at the instance of this Court under Article 226 of the Constitution of India and it is for the petitioner to work out his remedies available as per the statute.

7. I have carefully gone through the records and considered the contentions raised by both sides. On going through the materials placed before this Court, it is evident that, this is not a case where a willful attempt is made out, to evade the tax. The whole confusion arose on account of a transaction which occurred during the transition period between two financial years. It is also evident that, even though invoices were raised during the fag end of the financial year 2017-18, the goods were received by the petitioner during the commencement of the financial year 2018-19. Taking into account the date of receipt of the goods, the petitioner reported the said transaction by including in the same in the return submitted in the month of April 2018. Therefore, what was to be done, was only the reconciliation of the transactions. It is also discernible from Ext.P1 that, the petitioner was required to produce the original invoices, so as to verify the same and the proceedings were finalised because of the failure on the part of the petitioner in furnishing the same. In this regard, the case of the petitioner is that, since Ext.P1 was uploaded in the tab for additional notices, the petitioner was not aware of the same and on account of the same, he could not produce the said documents.

8. Of course it is true that, Ext.P1 refers to a previous notice which required the petitioner to furnish the original invoices before the authority concerned. However, even if that is treated as a lapse on the part of the petitioner, I am of the view that, in the light of the facts and circumstances of the case, a lenient view is warranted, since I have already found that, this is not a case in which a willful attempt to evade tax was made out. As observed above, this is only a case that necessitates readjustments of the amount by way of reconciliation. Therefore, I am of the view that an opportunity can be granted to the petitioner to produce the necessary records, including the original invoices, to substantiate his contention, before the original assessing authority.

In such circumstances, this writ petition is disposed of, quashing Ext.P2 with a direction to the 1^st respondent to reconsider the matter, after giving the petitioner an opportunity to produce necessary records and after giving him an opportunity for being heard. This shall be done within a period of three months from the date of receipt of copy of this judgment.