HC Sets Aside GST Demand Order for Mechanical ITC Mismatch; Orders Fresh Adjudication

A steel dealer found themselves in hot water for FY 2017-18 when GST authorities flagged discrepancies between their GSTR-3B, GSTR-1, and GSTR-2A returns. After the usual exchange of notices, the department slapped the dealer with an order for tax, interest, and penalties. The dealer’s defence was simple: the order was passed “mechanically” based on automated portal mismatches without ever looking at their reconciliation statements or accounting for the chaotic “teething problems” of the early GST era.

Issue Raised: Can a GST demand be sustained if it relies solely on GSTR-2A mismatches without a proper hearing or a review of actual business records?

HC Held: The High Court stepped in, ruling that while the dealer could have filed a standard appeal, a writ petition was justified because basic fairness—natural justice—had been ignored. The Court made it clear that denying Input Tax Credit (ITC) just because GSTR-2A doesn’t match GSTR-3B is legally unsustainable. The Judge noted that tax officers cannot act like robots. They are legally required to independently verify purchase registers, invoices, and reconciliation documents rather than just following portal-generated alerts.

Furthermore, because the dealer wasn’t given a meaningful personal hearing (a requirement under Section 75(4)), the entire order was flawed. The Court set aside the demand and sent the case back for a fresh, reasoned review, reminding the department that tax adjudication requires actual human judgement, not just an automated “yes” or “no.” Thus, the matter was remitted back with directions to provide an opportunity for a hearing, consider reconciliation in light of Circular No. 183/15/22-GST, and pass a fresh reasoned order. The Court also restrained the department from taking coercive steps until such reconsideration.

To Read Full Judgment, Download PDF Given Below