In a recent ruling, the Gujarat High Court imposed a cost of Rs. 1 lakh on the GST Department for failing to apply its mind while adjudicating a case involving input tax credit (ITC) mismatch.
Grasim Industries Ltd. filed a writ petition before the High Court challenging an order passed by the adjudicating authority under the Central Goods and Services Tax Act, 2017. The dispute arose from a mismatch between the details submitted in Form GSTR-1 and the ITC claimed in Form GSTR-3B for the financial year 2018–19.
The company explained that it had mistakenly used an old GSTIN while filing returns for its Surat warehouse but had later rectified the error in its subsequent returns, which were reflected in GSTR-2A and GSTR-9 for the following year.
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Despite this, the department proceeded with a show cause notice and passed an order-in-original dated 25.04.2024 confirming a demand of over Rs. 45 crore, alleging wrongful availment of ITC. The appellant’s application for rectification under Section 161 of the CGST Act was also rejected summarily on the ground that there was no apparent error on the face of the record.
The department’s counsel argued that the petitioner had failed to produce sufficient documentation to justify the ITC claims and that discrepancies between GSTR-1 and GSTR-3B warranted the demand. They relied on a GST Council circular, which outlines the proper officer’s obligation to verify tax invoices and payments in such cases.
In response, the appellant’s counsel stated that the error had been corrected within the time allowed under the Act and that the rectified data was verifiable from their subsequent returns and audit trail. They argued that the department had full access to these documents and still failed to consider them.
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A division bench comprising Justice Bhargav D. Karia and Justice D.N. Ray found that the department had acted mechanically and ignored the reconciliations and amended returns furnished by the petitioner. The court observed that departmental officers themselves had later admitted, through a compliance report and affidavit, that the mismatch was only due to data entry errors and not due to any tax evasion or illegality.
The court held that the tax demand was raised without proper application of mind and contrary to the evidence on record. It quashed both the original order and the rectification rejection, observing that the department’s actions had imposed an unjustified financial burden on the petitioner. The Gujarat High Court directed the department to deposit Rs. 1 lakh with the Gujarat State Legal Services Authority as a token cost and disposed of the writ petition.
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