The Karnataka High Court has reaffirmed that procedural fairness is non-negotiable in tax adjudication, setting aside a GST order that ignored critical reconciliation documents submitted by the petitioner. This judgment reinforces the duty of tax authorities to engage meaningfully with all evidence presented, particularly when the outcome hinges on factual reconciliation of electronic returns.
Background & Facts
The Dispute
The petitioner, M/s Felicity Adobe LLP, a registered limited liability partnership under the Limited Liability Partnership Act, 2008, was issued a Show Cause Notice (SCN) by the Assistant Commissioner of Central Tax, East Division-6, Bengaluru, alleging ineligible Input Tax Credit (ITC) claimed during the financial year 2023-24. The allegation arose from a purported mismatch between the petitioner’s GSTR-3B (monthly return) and GSTR-2A (auto-populated inward supply data), resulting in a demand of unapproved ITC under Section 16(4) of the CGST Act, 2017.
Key Facts
- The petitioner filed its reply to the SCN on 03.01.2025 (Annexure-E), addressing the alleged discrepancies in ITC claims.
- Along with Annexure-E, the petitioner submitted Annexure-1, a detailed reconciliation statement comparing GSTR-3B and GSTR-2A data for the relevant period.
- Annexure-1 was intended to demonstrate that the alleged mismatches were either resolved, explained, or non-existent upon proper reconciliation.
- The impugned order-in-original (Annexure-A) was passed on 24.02.2025.
- The order, at paragraph 11.2, acknowledged receipt of the petitioner’s reply dated 03.01.2025.
- However, at paragraph 13.6, the authority stated: "the noticee has not submitted any reconciliation statement/documents for differential ITC availed between GSTR-2A and GSTR-3B."
- No reference was made in the order to Annexure-1, despite its explicit submission and relevance.
- The petitioner was not granted a personal hearing prior to the issuance of the order.
Procedural History
- 03.01.2025: Petitioner submitted reply (Annexure-E) and reconciliation statement (Annexure-1) to the Show Cause Notice.
- 24.02.2025: Assistant Commissioner issued Order-in-Original (Annexure-A) rejecting ITC claims and imposing demand without addressing Annexure-1.
- 16.04.2026: Writ Petition No. 10343 of 2026 filed before the Karnataka High Court seeking quashing of the order.
Relief Sought
The petitioner sought:
- Quashing of the order dated 24.02.2025 (Annexure-A)
- Condonation of delay in filing appeal against the order
- Remand of the matter for fresh adjudication with opportunity to present Annexure-1
- Direction to consider all submissions and documents before passing a final order
The Legal Issue
The central question was whether an adjudicating authority violates the principles of natural justice by failing to consider or even acknowledge a reconciliation document submitted by the assessee in response to an ITC mismatch notice, particularly when the document directly addresses the core allegation.
Arguments Presented
For the Petitioner
Sri Vikram Huilgol, Senior Advocate, argued that the authority’s failure to refer to Annexure-1 in its order constituted a complete disregard of evidence submitted in good faith. He contended that the order’s assertion that no reconciliation was submitted was factually incorrect and rendered the adjudication arbitrary. He relied on State of Haryana v. Bhagwan Das and K. S. Puttaswamy v. Union of India to emphasize that natural justice requires authorities to consider all material placed before them. He submitted that if the matter were remanded, the petitioner could clearly demonstrate how Annexure-1 resolves the alleged discrepancies.
For the Respondent
Sri Aravind V. Chavan, Advocate for the Revenue, conceded that the reply dated 03.01.2025 was referred to in paragraph 11.2 but argued that the absence of any reference to Annexure-1 was merely an oversight. He maintained that the authority had sufficient grounds to reject the ITC claim based on the GSTR-3B and GSTR-2A mismatch and that the petitioner’s remedy lay in filing an appeal, not a writ petition.
The Court's Analysis
The Court observed that while the authority acknowledged receipt of the petitioner’s reply, it made a material error by stating that no reconciliation documents were submitted. This was not a mere omission but a factual misrepresentation that undermined the integrity of the adjudication process.
"The noticee has not submitted any reconciliation statement/documents for differential ITC availed between GSTR-2A and GSTR-3B for the period."
The Court held that this observation, made despite the presence of Annexure-1, amounted to a denial of fair hearing. The principle of audi alteram partem requires that every piece of evidence submitted must be addressed, not merely acknowledged. The Court emphasized that ITC disputes are inherently factual and hinge on reconciliation of electronic records, making Annexure-1 not just relevant but decisive.
The Court further noted that the absence of a personal hearing compounded the procedural defect. Even if the authority had considered Annexure-1, the lack of opportunity to orally explain the reconciliation would have been a separate violation. The Court concluded that the order was vitiated by non-application of mind and failure to consider material evidence.
The Verdict
The petition succeeded. The Court set aside the Order-in-Original dated 24.02.2025 (Annexure-A). The matter was remanded to the Assistant Commissioner for fresh adjudication. The authority was directed to reconsider the reply dated 03.01.2025 (Annexure-E) and the reconciliation statement (Annexure-1) submitted therewith. The petitioner was directed to appear before the authority on 18.05.2026 without further notice. All contentions were kept open for consideration during the fresh proceedings.
What This Means For Similar Cases
Reconciliation Documents Must Be Explicitly Addressed
- Practitioners must ensure all reconciliation statements (GSTR-2A vs GSTR-3B, GSTR-1 vs GSTR-3B) are clearly labeled and referenced in replies to SCN.
- Authorities cannot dismiss ITC claims by falsely asserting that no reconciliation was submitted.
- Failure to mention a submitted document in the order constitutes a violation of natural justice and is grounds for quashing.
Remand Is the Preferred Remedy Over Quashing
- Courts are increasingly inclined to remand rather than quash in technical tax disputes where factual clarification is possible.
- This preserves administrative efficiency while upholding procedural rights.
- Practitioners should seek remand as a primary relief in cases involving overlooked evidence.
No Personal Hearing = Procedural Defect
- Even if documents are submitted, the absence of a personal hearing in ITC adjudications remains a procedural flaw.
- While not always fatal, it strengthens the case for remand when combined with ignored evidence.
- Always request a personal hearing in writing and record the refusal in the file.
