GSTAT Lucknow Nullifies GST Demand Due to Defective Show Cause Notice and Improper ITC Scrutiny

Introduction

The Lucknow Bench of the GST Appellate Tribunal (GSTAT) has set aside a GST demand raised against Sakhsham Knowledge Services Private Limited for the financial year 2018–19, holding that the very foundation of the proceedings was invalid. The Tribunal concluded that:

  • No valid show cause notice under Section 73(1) of the UPGST Act, 2017 was ever issued to the appellant, and
  • The Form GST DRC-01 uploaded on the portal could not replace the statutory requirement of a detailed show cause notice, especially where the attached show cause notice was addressed to an entirely different assessee, namely M/s Sai Kripa Medical Store.

Although the defect in the notice itself was sufficient to dispose of the appeal, GSTAT also examined the merits relating to IGST demand and denial of input tax credit (ITC) based solely on GSTR-2A versus GSTR-3B mismatch, and found the orders lacking in reasoning and proper verification.

Background of the Appeal

Parties and Orders Challenged

  • Appellant: M/s Sakhsham Knowledge Services Private Limited (GSTIN: 09ABACS8716M1ZS), engaged in Information Technology services, based in Lucknow.
  • Impugned order: Order-in-Appeal No. ZD091125175391D dated 06.11.2025 passed by the Additional Commissioner Grade-II (Appeals)-5, State Tax, Lucknow, upholding the Order-in-Original.

The assessee approached GSTAT against:

  • The original adjudication order dated 19.04.2024, and
  • The appellate order affirming that decision.

The Tribunal distilled the dispute to two key questions of law:

  1. Whether Form GST DRC-01 (summary of show cause notice) can, by itself, satisfy the mandatory requirement of issuing a show cause notice under Section 73(1) of the CGST/SGST Acts.
  2. Whether ITC demand can be sustained merely on the basis of mismatch between GSTR-2A and GSTR-3B, without following the procedure laid down in Circular No. 183/15/2022-GST and without examining primary conditions of ITC eligibility.

Given that these were substantial legal questions, the matter was heard by a Division Bench.

Chronology of Events and Proceedings

Scrutiny Notice Under Section 61

On 08.11.2023, the proper officer issued a notice under Section 61 of the UPGST Act, 2017 (Reference No. ZD091123106657G), pointing out discrepancies for FY 2018–19:

  • Difference in the value of taxable supplies reported in GSTR-1 and GSTR-3B of Rs. 1,12,500/-, and
  • Corresponding “excess IGST” of Rs. 20,250.54.

The assessee responded through Form ASMT-11 (Reference No. ZD091123223837C dated 20.11.2023), explaining that:

  • A taxable supply of Rs. 1,12,000/- was inadvertently omitted in GSTR-1;
  • This omission was noticed while filing GSTR-3B; and
  • The correct tax liability on that transaction had already been paid through GSTR-3B.

The assessee contended that no ASMT-12 order was issued after this reply.

Show Cause Notice Addressed to a Different Entity

According to the assessee, the proper officer then issued a show cause notice dated 16.12.2023, allegedly proposing:

  • Reversal of ITC of Rs. 46,442.78 (CGST Rs. 23,221.39 + SGST Rs. 23,221.39) based on mismatch between ITC as per GSTR-2A and ITC availed in GSTR-3B.

However, this show cause notice was not addressed to the assessee at all. It was addressed to:

  • M/s SAI KRIPA MEDICAL STORE (GSTIN: 09DBFPP9429F1Z7).

On the GST portal, only a summary in Form GST DRC-01 was uploaded (Reference No. ZD091223289031K dated 18.12.2023). That DRC-01 summary demanded:

  • IGST: Rs. 20,250.00
  • CGST: Rs. 24,465.00
  • SGST: Rs. 24,465.00

The assessee maintained that since no show cause notice was ever issued in its own name, it chose not to file any reply.

Order-in-Original and Monetary Demand

Despite the above, the adjudicating authority passed an Order-in-Original on 19.04.2024, accompanied by Form GST DRC-07 (Reference No. ZD0904242448544), demanding:

  • Tax: Rs. 67,180/-
    • IGST: Rs. 20,250/-
    • CGST: Rs. 23,465/-
    • SGST: Rs. 23,465/-
  • Interest: Rs. 60,463/-
    • IGST: Rs. 18,225/-
    • CGST: Rs. 21,119/-
    • SGST: Rs. 21,119/-
  • Penalty: Rs. 30,000/-
    • IGST: Rs. 10,000/-
    • CGST: Rs. 10,000/-
    • SGST: Rs. 10,000/-

These amounts were computed up to the date of the order.

First Appeal and Findings of Appellate Authority

The assessee preferred an appeal before the Additional Commissioner (Grade-2), Appeals-5, State Tax, Lucknow. The assessee specifically explained that a portion of ITC related to supplies from:

  • M/s Incuspaze Solutions Private Limited (GSTIN: 09AAECI2591P2ZW), under Tax Invoice No. 283 dated 01.01.2019.

The case put forth by the assessee before the first appellate authority included: