Facts of the Case

Biocon Limited filed a writ petition before the Karnataka High Court challenging the Order-in-Original dated 22.02.2024 passed under Section 73(9) of the CGST/KGST Act, 2017, whereby various GST demands were confirmed pursuant to an audit conducted for the financial year 2018-19.

Following audit proceedings, the department first issued a pre-intimation in Form GST DRC-01A under Section 73(5) demanding ₹1,15,15,27,040. Thereafter, a Show Cause Notice under Section 73(1) proposed a demand of ₹90,82,01,601 along with interest and penalty. After considering the petitioner's reply, written submissions and personal hearing, the adjudicating authority confirmed tax of ₹30,37,84,642, interest of ₹29,14,02,162, and penalty of ₹3,03,78,464. Aggrieved by the order, the petitioner approached the High Court.

Issues Involved

  1. Whether Input Tax Credit (ITC) could be denied merely because ITC claimed in GSTR-3B exceeded the ITC reflected in GSTR-2A for FY 2018-19.
  2. Whether ITC relating to imports and SEZ procurements could be denied despite availability of Bills of Entry and other statutory documents.
  3. Whether correction made through GSTR-9 could be ignored while determining admissibility of ITC.
  4. Whether the adjudicating authority correctly appreciated statutory provisions, circulars, notifications, Government advisories and judicial precedents while deciding issues relating to:
    • Corporate Guarantee
    • Cross Charges
    • Promotion Expenses
    • Merchant Export at concessional rate of 0.1%
    • Excess Export Refund
    • Reverse Charge Mechanism (RCM)
    • ITC relating to Doctor Consulting and Patient Counselling.

Petitioner's Arguments

The petitioner submitted that:

  • The alleged excess ITC arose only because of an incorrect disclosure in GSTR-3B and not because of wrongful availment of ITC.
  • ITC relating to imports and SEZ procurements had inadvertently been reported under Table 4(A)(5) instead of Table 4(A)(1) in GSTR-3B.
  • The reporting error was subsequently corrected in GSTR-9.
  • During FY 2018-19, GSTR-2A did not capture import transactions and SEZ procurements, and therefore comparison between GSTR-3B and GSTR-2A was legally unsustainable.
  • Bills of Entry constitute valid documents for availing ITC under Rule 36(1)(d).
  • The requirement of invoice matching under Section 16(2)(aa) became effective only from 01.01.2022, and therefore could not be applied retrospectively.
  • The issue had already been examined during ASMT-10 proceedings, where reconciliation had been submitted.
  • The adjudicating authority ignored statutory provisions, Government advisories, circulars, notifications and judicial precedents while deciding the remaining issues.

Respondent's Arguments

The respondents contended that:

  • The petitioner had claimed ITC in excess of the ITC reflected in GSTR-2A.
  • The petitioner failed to establish that the disputed ITC related to imports and SEZ procurements.
  • ITC allegedly omitted in GSTR-3B could not subsequently be regularised through GSTR-9, as the time limit under Section 16(4) had expired.
  • Since no ASMT-12 had been issued after ASMT-10 proceedings, the petitioner could not claim acceptance of its reconciliation.
  • The adjudicating authority had rightly confirmed the tax demand together with interest and penalty.

Court Order / Findings

The Karnataka High Court partly allowed the writ petition.

The Court observed that:

  • During the relevant period, GSTR-2A was designed only to reflect supplies reported by domestic suppliers and did not capture import transactions or SEZ procurements.
  • Import details and SEZ procurements began reflecting in GSTR-2A only after subsequent GSTN system changes and Government advisories.
  • Bills of Entry are valid statutory documents for availing ITC under Rule 36(1)(d).
  • The authorities failed to appreciate that the alleged mismatch arose because of incorrect reporting in GSTR-3B and not due to wrongful availment of ITC.
  • The requirement of matching ITC with GSTR-2A was introduced only after insertion of Section 16(2)(aa) with effect from 01.01.2022, and therefore could not be applied to FY 2018-19.
  • Accordingly, the demand of ₹20,00,82,381 towards excess ITC together with corresponding interest and penalty was unsustainable and liable to be set aside.

With respect to the remaining issues, namely:

  • GST on Corporate Guarantee,
  • Cross Charges,
  • Promotion Expenses,
  • Merchant Export at 0.1%,
  • Export Refund,
  • Reverse Charge Mechanism,
  • ITC relating to Doctor Consulting and Patient Counselling,

the Court held that the adjudicating authority had failed to properly consider the petitioner's submissions, statutory provisions, circulars, notifications and judicial precedents. Accordingly, those issues were set aside and remanded to the adjudicating authority for fresh consideration in accordance with law.

Important Clarification

This judgment clarifies that:

  • For the period prior to 01.01.2022, ITC cannot be denied merely because of mismatch between GSTR-3B and GSTR-2A, particularly where the difference relates to imports or SEZ procurements.
  • Bills of Entry continue to be valid statutory documents for availing ITC on imported goods.
  • Reporting errors in GST returns cannot automatically result in denial of ITC without examining the actual eligibility of the credit.
  • Adjudicating authorities must consider statutory provisions, Government advisories, circulars, notifications and judicial precedents before confirming GST demands.
  • Matters involving corporate guarantee, cross charges, merchant exports, promotion expenses, export refunds, RCM and restricted ITC require proper adjudication after considering the taxpayer's submissions.

Sections Involved

  • Articles 226 & 227 of the Constitution of India
  • Sections 16, 16(2), 16(2)(aa), 16(4), 17, 73(1), 73(5) & 73(9) of the Central Goods and Services Tax Act, 2017
  • Corresponding provisions of the Karnataka Goods and Services Tax Act, 2017
  • Rule 36(1)(d) of the CGST/KGST Rules, 2017

Link to Download the Order-https://mytaxexpert.co.in/uploads/1784626575_1781compressed.pdf

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