Gujarat HC Penalises Tax Dept ₹1 Lakh for Disregarding Rectified Mismatch in GST Returns

For failing to properly analyse the case of a GST ITC mismatch, the Gujarat High Court imposed a cost of ₹1 lakh on the state tax department.

A writ petition has been furnished by the Grasim Industries Ltd to the Gujarat HC contesting an order passed by the adjudicating authority under the Central Goods and Services Tax Act, 2017. From a mismatch between the furnished details in Form GSTR-1 and the ITC claimed in Form GSTR-3B for the FY 2018-19, the issue has emerged.

As per the company, it had incorrectly used an old GSTIN while filing returns for its Surat warehouse, but had subsequently corrected the error in its following returns, which were shown in GSTR-2A and GSTR-9 for the subsequent year.

Even after this, the department moved with the SCN and passed an order in original on 25.04.2024 affirming a demand of more than Rs 45 crore, alleging the incorrect claim of ITC. The application of the appellant for the rectification u/s 161 of the CGST Act was rejected summarily based on the ground that there was no error in the record.

The counsel of the department claimed that the applicant is not able to produce enough documentation to explain the ITC claims and that the discrepancies between GSTR-1 and GSTR-3B necessitate the demand. They put reliance on a GST council circular that cites the liabilities of the proper officer to validate the tax invoices and payments in such cases.

The counsel of the appellant in answer cited that the error has been rectified within the provided time under the act and that the rectified data was verifiable from the forthcoming returns and audit trail. They claimed that the department can access such documents and is not able to recognise them.

The division bench, including Justice Bhargav D. Karia and Justice D.N. Ray, discovered that the department has acted mechanically and overlooked the reconciliations and revised the returns submitted by the applicant.

Must Read: Madras HC Dismisses GST Writ on GSTR-2A vs 3B ITC Mismatch, Cites Appeal Route

The court said that the departmental officers considered it afterwards via a compliance report and affidavit that the mismatch was because of the errors in the data entry rather than any tax evasion or illegality.

Court, the tax demand was raised without an appropriate application of mind and opposite to the proof on record. It quashed both the original order along the rectification rejection, marking the actions levied by the department, which is an unexplained financial hurdle for the applicant.

The Gujarat High Court asked the department to deposit Rs 1 lakh with the Gujarat State Legal Services Authority as a token cost and disposed of the writ petition.