Karnataka HC sets aside GST ITC Demand for Ignoring Mandatory Reconciliation Procedure under CBDT Circular [Read Order]

In a recent case involving the ignorance of mandatory reconciliation procedure mentioned in the CBDT ( Central Board of Direct Taxes ) circular, the KarnatakaHigh Court set aside the GST ( Goods andServices Tax ) ITC (Input Tax Credit) demand.

The issue began when the GST department issued an order on December 10, 2025, claiming that Ganges International, the petitioner, had wrongly claimed GST credits.

The authorities leveled a series of serious-sounding charges including claiming too much credit, dealing with "non-existent" suppliers, and failing to pay taxes under the Reverse Charge Mechanism (RCM).

Based on these findings, the department slapped the company with a formal demand for payment.

Ganges International argued that the entire investigation was fundamentally flawed because the department ignored important steps laid out in Circular No. 183/15/2022-GST.

The CBDT circular is a manual for how to handle mismatches between what a company claims in its monthly returns (GSTR-3B) and what shows up in the digital records of its suppliers (GSTR-2A). The company argued that skipping this mandatory "handshake" between documents made the whole tax demand invalid.

The Single bench of S. Sunil Dutt Yadav agreed, noting that the GST authorities did not try to deny that they had skipped the reconciliation step.

Because of this procedural "miss," the Court set aside the original tax demand and sent the whole case back to the SCN stage.

The court said that “The contention regarding non-following of the procedure does not appear to be controverted. In light of the same, it would be appropriate taking note of the order making detailed reference to wrongful availment of ITC, to set aside the impugned order at Annexure-A and remit the matter for reconsideration while observing that the mismatch between ITC availed in Form GSTR 3B as compared to the details in Form GSTR 2A is to be permitted to be reconciled in terms of the procedure prescribed in the Circular No.183/15/2022-GST dated 27.12.2022.”

The bench ordered that matter to be proceeded for reconsideration from the stage of reply to the show cause notice.

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