Karnataka HC: Ex-parte ITC Rejections Set Aside Subject to 10% Pre-deposit.

The Dispute: The GSTR-2A/3B Reconciliation Trap

The Conflict: For the financial year 2019-20, the petitioner was issued a Show Cause Notice (SCN) regarding discrepancies in their Input Tax Credit (ITC).

The Ex-parte Order: The petitioner failed to reply to the notice, leading the Assessing Officer to pass an order rejecting the ITC claim entirely.
The Revenue’s Stand: The claim was rejected on the grounds that the ITC was claimed belatedly (beyond the statutory time limit of Section 16(4)) and did not match the auto-populated GSTR-2A.
The Petitioner’s Plea: They argued that the reply couldn’t be filed due to circumstances beyond their control (COVID-19 aftermath) and that they possessed valid documents to prove the credit was legitimate despite the “mismatch.”

The Judicial Verdict: Remand for Substantive Justice

The High Court set aside the rejection and remanded the matter for fresh adjudication, prioritizing the merits of the tax claim over procedural lapses:

1. Addressing the COVID-19 Context

The Court took a lenient view of the petitioner’s failure to reply, acknowledging that the period in question (2019-20 and the subsequent assessment years) was heavily impacted by the pandemic. It held that an Ex-parte order based purely on a lack of response is a violation of the principles of Natural Justice.

2. The “Pre-deposit” as a Gateway to Justice

To demonstrate their bona fides (good faith), the petitioner offered to deposit 10% of the disputed tax. The Court made this deposit a mandatory condition for reopening the case.

The Logic: This ensures that the Revenue is not entirely prejudiced while the taxpayer gets an opportunity to present their evidence.

3. Fresh Opportunity to Explain Mismatches

The Court directed the petitioner to:

File a detailed reply to the SCN within the stipulated time.
Produce all relevant invoices and proof of payment of tax to the supplier to satisfy the conditions of Section 16.
Appear before the authority for a personal hearing.

Strategic Takeaways for Taxpayers in 2026

The Power of Section 16 Documentation: If your GSTR-2A doesn’t match your 3B, don’t panic. As per the Circular No. 183/15/2022-GST, if the discrepancy is for FY 2017-18 to 2019-20, you can still claim ITC by producing a Chartered Accountant (CA) certificate (if the gap is > ₹5 Lakhs) or a Supplier certificate (if < ₹5 Lakhs).
Pre-deposit is the “Standard Price”: If you are moving the High Court to set aside a time-barred or ex-parte order, be prepared to offer a 10% deposit. This is the standard “security” courts demand to grant a remand.
Don’t ignore the “Additional Notices” Tab: Most ex-parte orders occur because notices are uploaded to the GST portal but not sent via email. Make it a weekly habit to check the “Services > User Services > View Additional Notices” section.
Section 16(4) Limitation: While the court was lenient here, remember that the deadline to claim ITC for a financial year is now generally the 30th of November of the following year. Evidence of “timely claim” is the most important factor in these disputes.

HIGH COURT OF KARNATAKA

Reliflex Exim Services (OPC) (P.) Ltd.

Assistant Commissioner of Commercial Taxes^*

S Sunil Dutt Yadav, J.

WRIT PETITION NO. 4388 OF 2026 (T-RES)

MARCH 5, 2026

Swamy M.M., Adv. for the Petitioner. Hema Kumar K., AGA for the Respondent.

ORDER

1. Sri Hema Kumar, learned Additional Government Advocate is directed to accept notice for the respondent.

2. The petitioner has sought for setting aside of the impugned ‘Order of Adjudication’ dated 21.04.2023 passed by the Respondent under Section 73 of KGST/CGST Act for the Financial Year, April, 2019,- March, 2020 and impugned Order dated 28.08.2024 passed by the respondent under the CGST/KGST Acts for the Financial Year 2019-2020 respectively at Annexure-‘A’ and ‘A1’.

3. It is submitted that, the petitioner did not file reply to the Show-Cause notice due to certain reasons beyond their control including COVID-19 Pandemic.

4. It is submitted that the Orders passed are exparte Orders and the petitioner may be afforded an opportunity to satisfy the Authority regarding alleged discrepancies between Form GSTR-3B and Form GSTR-2A.

5. Perused the impugned ‘Orders’ at Annexure-‘A’ and Annexure-‘A1’.

6. The petitioner submits that the discrepancy as allegedly noticed by the revenue regarding the ITC available as per GSTR-3B and ITC available as per GSTR2A is a matter for reconciliation which would be demonstrated by placing appropriate material.

7. Insofar as impugned ‘Order’ at Annexure-‘A’ is concerned, the Authority has rejected the claim of ITC on the ground that the claim was made belatedly. It is further observed that, in light of Section 16(4) of the Karnataka Goods and Services Tax Act, 2017, (for short ‘KGST Act’) filing of returns beyond due date prescribed for filing of annual returns would render the claim for ITC in-eligible.

8. Insofar as the impugned Order at Annexure-‘A1’ is concerned, it is noticed that the Authority has concluded the proceedings ex-parte, while observing that there is an excess claim of ITC in GSTR-3B return as compared to GSTR-2A return, uploaded by the supplier.

9. In both these matters, the petitioner submits that they would appear before the Authority and make out their case and meet the grounds raised in the Show-Cause Notice.

10. Accordingly, in light of the submission made by the petitioner and as the petitioner undertakes to make deposit of 10% of the disputed tax in both the Order at Annexure-‘A’ and Annexure-‘A1’, Order could be passed putting the petitioner on terms. As the petitioner has offered to make payment to ensure that there will be no revenue loss for the present, it would be appropriate to set aside Order at Annexures-‘A’ and ‘A1’, and remit the matter back to the stage of reply to the Show-Cause Notice.

11. The petitioner would appear before the respondent on 08.04.2026 without further notice.

12. 10% of the disputed demand raised insofar as the Order at Annexures-‘A’ and ‘A1’ respectively to be satisfied within 3 weeks from today.

13. All contentions are kept open. Needless to state that, if petitioner is absent on the next date, indulgence granted by this Court would stand rescinded. The petitioner also undertakes to co-operate in conclusion of the proceedings as per law.

Accordingly, the petition is disposed of.