Facts of the Case

M/S NL Tile Art Pvt Ltd, Bengaluru, was subjected to an adjudication order dated 19.07.2024 and a summary order in Form GST DRC-07 under Sections 73(9), 73(10), 50 and 122 of the KGST/CGST Act, 2017 for the tax periods April 2019 to March 2020, alleging that excess input tax credit (ITC) had been availed. A first appeal against the order was also rejected on 21.02.2025. The petitioner's case was that ITC of Rs 9,97,050 and Rs 46,750 claimed in FY 2018-19 had been reversed through Form DRC-03 to the extent of Rs 4,69,447 in FY 2019-20, and that ITC not claimed in FY 2019-20 had instead been claimed in FY 2020-21 — factors which, if considered together with the annual returns, would show no excess ITC had actually been availed.

Issues Involved

  1. Whether an order confirming excess ITC availment can be sustained where it is based only on a comparison of GSTR-2A and GSTR-3B, without considering the annual returns and DRC-03 reversal filings.

Petitioner's Arguments

  • The alleged excess ITC arose only because the department compared GSTR-2A and GSTR-3B in isolation, ignoring the annual returns and the DRC-03 reversal of Rs 4,69,447 already made by the petitioner.
  • ITC not claimed in one financial year had simply been carried forward and claimed in a subsequent year, and once all years were read together there was no actual excess availment.
  • The documentary record, including annual returns and DRC-03 filings, fully substantiated these submissions.

Respondent's Arguments

  • No specific counter is recorded beyond the impugned order's reliance on the GSTR-2A/3B comparison for the relevant tax periods; the department's position rested on the figures reflected in those returns alone.

Court Order / Findings

  • The Court found that the respondent ought to have considered the annual returns and tabulated the ITC claims across years, along with the DRC-03 reversal, before concluding that excess ITC had been claimed.
  • Since the matter required factual re-appreciation of ITC claimed, reversed and carried forward across financial years, the Court held the impugned orders unsustainable and remitted the matter for fresh consideration at the stage of reply to the show-cause notice.
  • The adjudication order, the DRC-07 summary, and the first appellate order were all set aside.
  • The petitioner was directed to appear before the respondent without further notice and submit its reply, to be considered in line with the directions of the Court in a comparable case.

Important Clarification

  • A GSTR-2A/3B mismatch analysis, taken in isolation, is not sufficient to conclusively establish excess ITC availment where annual returns and DRC-03 reversal filings materially alter the picture.
  • Tax officers are expected to holistically reconcile ITC claims across financial years, including reversals and later-year claims, rather than confine scrutiny to a single set of monthly returns.

Sections Involved

  • Section 73(9)/(10), KGST/CGST Act, 2017 – confirmation of demand for tax short paid/ITC wrongly availed.
  • Section 50, CGST Act, 2017 – interest on delayed payment of tax.
  • Section 122, CGST Act, 2017 – penalty for certain offences.
  • Form GST DRC-03 – voluntary payment/reversal of tax or ITC.

Decision – In Favour of

The decision is in favour of the assessee, M/S NL Tile Art Pvt Ltd — the demand, summary order and appellate order were all set aside, and the matter remitted for fresh reconciliation.

Case Details

High Court of Karnataka at Bengaluru – WP No. 20196 of 2025 (T-RES) – Neutral Citation: 2025:KHC:28053 – Coram: Hon'ble Mr. Justice Suraj Govindaraj – Order dated 23.07.2025.

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