Case Law

Calcutta High Court: ITC Mismatch Demand Confirmed Without Verifying Section 16 Conditions Set Aside — Fresh Adjudication Ordered

Published 18 Aug 2026· Updated 18 Aug 2026· 5 min read

Executive Summary: The Calcutta High Court, in Mongal Deep Enterprise & Ors. v. State of West Bengal (W.P.A 13375 of 2025, 2026 TAXSCAN (HC) 1303, decided 11 August 2026), has set aside an ex parte GST demand of ₹2,28,241 raised on account of an alleged Input Tax Credit mismatch between Forms GSTR-3B and GSTR-2A, holding that orders under Section 73 of the CGST Act confirming such a demand must first verify fulfilment of the conditions prescribed under Section 16 of the CGST Act — as mandated by CBIC Circular No. 183/15/2022-GST — before the demand can be confirmed. Justice Smita Das De directed fresh adjudication after finding that neither the show cause notice’s proper service nor the Circular’s mandated verification steps had been complied with.

Background / Facts

The petitioners, Mongal Deep Enterprise and others, are an unregistered partnership firm trading in food products, registered under both the CGST Act and the West Bengal GST Act. A show cause notice was issued alleging a mismatch of ₹2,28,241 between the ITC claimed in GSTR-3B and that reflected in GSTR-2A. The petitioners’ counsel submitted that the notice was never served on the petitioner, leaving them unaware of the proceedings and unable to file a reply — resulting in an ex parte order confirming the demand. The department’s counsel countered that there was no illegality, since the adjudicating authority was justified in proceeding ex parte given the absence of any reply from the petitioner.

The Court’s Reasoning

Section 16 of the CGST Act sets out the conditions a taxpayer must satisfy to be entitled to Input Tax Credit. The Court held that a demand based on an alleged ITC mismatch can be confirmed only after the proper officer has first verified whether those Section 16 conditions have actually been fulfilled — a verification step made explicit by CBIC Circular No. 183/15/2022-GST, dated 27 December 2022, which lays down the procedure for reconciling differences between ITC claimed in GSTR-3B and that reflected in GSTR-2A. Specifically, the Circular requires the proper officer to obtain invoice-wise details of the ITC claimed but not reflected in GSTR-2A, and to verify possession of a valid tax invoice, actual receipt of the goods or services, and that the value of the supply along with applicable tax was actually paid to the supplier. Justice Smita Das De found that the impugned orders had been passed without adhering to this mandated procedure, and set them aside, directing fresh adjudication.

Why It Matters

ITC-mismatch demands based on a bare GSTR-3B/GSTR-2A comparison remain one of the most common categories of GST notices practitioners handle, and this ruling is a useful, directly citable reminder that Circular 183 is not optional departmental guidance — it is a mandated verification sequence that must be followed before any such demand can be confirmed. For any client facing an ITC-mismatch demand, particularly one confirmed ex parte, the first diagnostic question should be procedural: did the department actually carry out the Circular 183 verification (invoices, receipt of goods, payment to supplier), and was the SCN properly served? Both defects were present here, and either one independently supports a challenge.

Key Takeaways

CBIC Circular No. 183/15/2022-GST mandates a specific three-point verification (valid tax invoice, receipt of goods/services, payment of value plus tax to the supplier) before any ITC-mismatch demand between GSTR-3B and GSTR-2A can be confirmed.
An order confirming such a demand without this verification does not comply with the Circular’s mandated procedure and is liable to be set aside, as happened here.
Improper or unproven service of the show cause notice is a separate, independent defect that can support a challenge even where the Circular 183 verification point is not available.
The ruling applies even to a comparatively small demand (₹2,28,241), confirming that courts will apply the same procedural rigour regardless of the amount involved.
Fresh adjudication was ordered rather than an outright quashing of the demand — the department retains the opportunity to properly verify and re-adjudicate, so the underlying liability question is not finally closed.

Practical Implications

Firms handling any ITC-mismatch dispute should build “was the Circular 183 verification actually carried out” into their standard intake checklist, ahead of any argument on the underlying eligibility of the credit itself — this is often the fastest, most procedurally clean route to relief. Equally, firms should confirm proper service of the SCN as a standing check in every ex parte order challenge, since the two grounds (Circular non-compliance and improper service) are independent and either can succeed on its own. Given that fresh adjudication was ordered rather than final relief, clients should be advised that securing this kind of order buys a second chance at the merits, not a final win — the underlying ITC eligibility documentation should be organised proactively in anticipation of re-adjudication.

Action Checklist

For any client facing an ITC-mismatch demand between GSTR-3B and GSTR-2A, confirm whether the department carried out the Circular 183 verification before the demand was confirmed.
Separately verify whether the show cause notice was actually served and acknowledged, particularly in any matter proceeding ex parte.
Where either defect is present, cite Mongal Deep Enterprise and Circular No. 183/15/2022-GST in a challenge to the order.
On securing fresh adjudication, immediately assemble the client’s invoice-wise ITC documentation in anticipation of the department’s re-verification.
Treat this as a standing template for any bare GSTR-3B/GSTR-2A mismatch notice, regardless of the amount involved.

Relevant Sections / Rules / Notifications

Section 16, CGST Act, 2017 (conditions for entitlement to Input Tax Credit)
Section 73, CGST Act, 2017 (determination of tax not paid/short paid, other than by fraud)
CBIC Circular No. 183/15/2022-GST, dated 27 December 2022
Calcutta High Court: Mongal Deep Enterprise & Ors. v. State of West Bengal, W.P.A 13375 of 2025, 2026 TAXSCAN (HC) 1303, decided 11 August 2026 (Justice Smita Das De)

FAQs

Q: Our client received an ex parte GST demand for an ITC mismatch — is it automatically invalid?
A: Not automatically, but it is vulnerable if the department did not first carry out the Circular 183 verification or if the show cause notice was not properly served. Both defects were present in this case and either independently supported setting the order aside.

Q: Does this ruling mean the client owes nothing?
A: Not necessarily — the Court ordered fresh adjudication rather than quashing the demand outright. The client’s underlying documentation should be organised in anticipation of that.

Prepared by Finoscape Editorial Team — contact@finoscape.com. This article is for general informational purposes and does not constitute legal or tax advice on any specific ITC mismatch matter. Readers should consult a qualified professional and verify the primary order before relying on this analysis.