Kerala High Court

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INTRODUCTION

The petitioner, Henna Medicals, challenged:

• Assessment Order dated 28.12.2021, and
• Recovery Notice dated 02.09.2023.

The Department denied ITC amounting to ₹2,58,116, along with interest and penalty, aggregating to approximately ₹4,58,156.

From the assessment order, the High Court found that the only basis for denial of ITC was the difference between GSTR-2A and GSTR-3B.

There was no discussion regarding:

• genuineness of purchases,
• receipt of goods,
• invoices,
• payment evidence, or
• any allegation of fake transactions.

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Legal Issues

The Court considered:

1. Whether ITC can be denied solely because GSTR-2A does not match GSTR-3B.
2. Whether the Assessing Officer must examine independent evidence before rejecting ITC.
3. Whether the assessment order was sustainable when based only on GSTR mismatch.

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Petitioner’s Contentions

The petitioner challenged the assessment and recovery proceedings on the ground that:

• ITC had been wrongly denied merely because of GSTR mismatch;
• the assessment ignored documentary evidence supporting the ITC claim;
• denial solely on the basis of GSTR-2A was contrary to law.

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Department’s Stand

From the judgment, the Department’s action was based exclusively on:

• the difference between GSTR-2A and GSTR-3B.

No further factual inquiry regarding the genuineness of the transactions is recorded in the judgment.

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Detailed Analysis

1. Sole Basis of Assessment Was GSTR Mismatch

The Court first examined the assessment order.

It observed that:

the only ground on which ITC had been denied was the difference between GSTR-2A and GSTR-3B.

The Court found that such an approach was legally unsustainable.

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2. Reliance on Earlier Kerala High Court Judgment

The Court relied upon its earlier decision in:

Diya Agencies v. State Tax Officer

The Court reproduced Paragraph 8 of that judgment, wherein it had already held:

• denial of ITC merely because the tax is not reflected in GSTR-2A is impermissible;
• the Assessing Officer must examine the evidence produced by the assessee;
• if the claim is bona fide and genuine, ITC should be granted.

Thus, the Court applied the same principle in the present case.

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3. Consideration of Supreme Court and Calcutta High Court Judgments

The Court also took note of:

• State of Karnataka v. Ecom Gill Coffee Trading Private Limited
• Suncraft Energy Pvt. Ltd. v. Assistant Commissioner of State Tax

The Court observed that after considering these judgments, it had already held in Diya Agencies that:

ITC under the GST regime cannot be denied merely because of a difference between GSTR-2A and GSTR-3B.

Importantly, the Court did not interpret Ecom Gill as permitting automatic denial of ITC on account of return mismatch.

Rather, it harmonised Ecom Gill with Diya Agencies and Suncraft Energy by requiring examination of the assessee’s evidence.

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4. Duty of the Assessing Officer

The Court directed that:

• the petitioner should be given an opportunity to produce evidence;
• the Assessing Officer must independently examine that evidence;
• fresh orders should thereafter be passed in accordance with law.

Thus, the Court emphasised substantive examination over portal-based reconciliation.

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Ratio Decidendi

Input Tax Credit cannot be denied solely because of a mismatch between GSTR-2A and GSTR-3B.

Where the assessee produces evidence supporting the genuineness of the ITC claim, the Assessing Officer must independently examine such evidence and decide the claim in accordance with law.

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Significance of the Judgment

The judgment reinforces several important GST principles.

1. GSTR-2A Is Not Conclusive

Portal mismatch alone cannot determine ITC eligibility.

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2. Documentary Evidence Prevails

The assessee must be permitted to establish entitlement through:

• tax invoices;
• books of account;
• purchase records;
• payment evidence; and
• other supporting documents.

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3. Natural Justice

Before denying ITC, the Assessing Officer must provide an opportunity to produce evidence.

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4. Fresh Adjudication Required

Where assessment is based solely upon GSTR mismatch, remand is appropriate for fresh consideration.

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Relationship with Earlier Cases

This judgment follows and strengthens the principles laid down in:

1. Diya Agencies v. State Tax Officer

• GSTR-2A mismatch alone cannot defeat ITC.
• Evidence must be examined.

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2. Suncraft Energy Pvt. Ltd. v. Assistant Commissioner of State Tax

• Proper inquiry is necessary before reversing ITC.
• Supplier default alone cannot justify denial.

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3. State of Karnataka v. Ecom Gill Coffee Trading Private Limited

The Kerala High Court did not read Ecom Gill as laying down that GSTR mismatch automatically defeats ITC.

Instead, it understood Ecom Gill to require examination of the genuineness of the transaction through evidence. Therefore, where the dispute is only a GSTR-2A/GSTR-3B mismatch, the assessee must be allowed to prove the claim by documentary evidence.

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Application under GST Law

This judgment is highly relevant in GST assessments involving ITC mismatch.

Where ITC Cannot Be Denied Solely Because:

• invoice is absent in GSTR-2A;
• GSTR-2A differs from GSTR-3B;
• supplier has defaulted in uploading invoices.

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Evidence the Assessee Should Produce

The Court’s approach implies that taxpayers should produce:

• tax invoices;
• purchase register;
• books of accounts;
• stock register;
• payment proofs;
• e-way bills;
• transport documents;
• goods receipt records;
• supplier confirmations, where available.

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Role of the Assessing Officer

The Assessing Officer must:

• examine documentary evidence;
• determine whether the purchases are genuine;
• pass a speaking order based on evidence rather than portal mismatch alone.

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Conclusion

In Henna Medicals v. State Tax Officer (2023:KER:55979), the Kerala High Court reaffirmed that a mismatch between GSTR-2A and GSTR-3B is not, by itself, a legally sufficient ground to deny Input Tax Credit. Following its earlier decision in Diya Agencies and considering both Ecom Gill and Suncraft Energy, the Court held that the Assessing Officer must independently evaluate the evidence produced by the assessee. Where the claim is found to be bona fide and supported by documentary proof, ITC should be allowed. Accordingly, the assessment order and recovery notice were quashed, and the matter was remanded for fresh adjudication.

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