A taxpayer facing a GSTR-2A ITC mismatch cannot have the show cause notice quashed at the threshold simply because it holds valid invoices and paid through banks, the Gauhati High Court has held, leaving the bona fide purchaser defence to be tested before the proper officer.
Guwahati: The Gauhati High Court has dismissed a writ appeal by a Jorhat-based company against a show cause notice under Section 73(1) of the Assam Goods and Services Tax Act, 2017 proposing to recover about Rs 27.25 lakh in input tax credit (ITC), holding that whether the company is a bona fide purchaser entitled to the credit is for the proper officer to decide, and not a ground to quash the notice in writ jurisdiction [M/s Surya Business Private Limited v. State of Assam and Others].
A Division Bench of Chief Justice Ashutosh Kumar and Justice Arun Dev Choudhury, in an oral judgment authored by Justice Arun Dev Choudhury on September 22, affirmed a single-judge ruling of August 10, 2026, including its direction excluding the period of the writ litigation from the limitation for completing the proceedings.
The case
The appellant, a private limited company doing business at Gar Ali, Jorhat, was selected for audit under Section 65 of the AGST Act for 2018-19. An audit observation of December 13, 2023 alleged excess availment of ITC of about Rs 27.25 lakh, on the ground that invoices for certain inward supplies from a registered supplier, M/s Atikur Rahman, were not reflected in the company’s GSTR-2A.
In its reply of December 17, 2023, the company said it held valid tax invoices, had actually received the goods and had paid their value, including tax, through banking channels. It argued that GSTR-2A is only a facilitating mechanism and cannot by itself be the basis to deny ITC, relying on Union of India v. Bharti Airtel Ltd., (2022) 4 SCC 328, and CBIC communications. The audit report in Form GST ADT-02 followed on January 8, 2024, and the show cause notice proposing recovery with interest and penalty was issued three days later, on January 11, 2024.
The company challenged the notice and obtained an interim order on February 5, 2024 restraining further proceedings. The single judge eventually declined to interfere, but allowed the company to file its reply within 30 days and raise all its contentions before the proper officer, and excluded the period from January 12, 2024 to August 10, 2026 while computing limitation under Section 73(10).
Bona fide purchaser plea is for the officer
Advocate Ankit Kanodia, for the company, argued that a bona fide purchaser who has invoices, has received the goods and has paid the tax to a registered supplier cannot suffer because the supplier failed to make the invoices appear in GSTR-2A. The Bench accepted that there was force in the argument, but held that it could not be decided at the notice stage:
“There is considerable force in the submission that an assessee’s entitlement to ITR cannot be determined merely by looking at one electronic statement without examining the statutory conditions governing availment of such credit. However, at this stage of the show-cause notice, this court ought not to undertake the adjudication of the appellant’s entitlement to ITR and consequently quash the notice.”
On the company’s reliance on the Court’s earlier decision in National Plasto Molding v. State of Assam, 2024 SCC Online Gau 1595, that ITC cannot be denied to a bona fide purchaser for the selling dealer’s default, the Bench said the ruling can be placed before the proper officer, who “is bound to take notice of the same and decide the matter in accordance with the law declared by this court” if it applies.
No counter-affidavit, no predetermination
The Bench rejected the argument that the State’s failure to file a counter-affidavit left the company’s assertions uncontroverted, holding that the question before the writ court was only whether the notice was without jurisdiction, not the final entitlement to credit. It also rejected the contention that issuing the notice three days after the audit report, without dealing with the company’s detailed reply, showed a closed mind:
“The show cause notice is not the adjudication of the liability, but its initiation with due opportunity to the appellant.”
Nor, the Court held, was the notice without jurisdiction because the department proceeded against the recipient without first proceeding against the defaulting supplier. The authority has jurisdiction to initiate proceedings under Section 73 for wrongful availment of ITC, and whether the demand is sustainable depends on adjudication under Sections 73 and 75. “The possibility that the appellant may succeed in adjudication is not a ground for holding that initiation of the proceeding itself is without jurisdiction,” it said.
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Limitation clock paused for writ period
The company also challenged the single judge’s direction excluding the period from January 12, 2024 to August 10, 2026 from the limitation under Section 73(10). The Bench declined to interfere, noting that the proceedings could not go on because of the interim order the company itself had obtained:
“The fact remains that the appellant has approached this court against the show-cause notice and has obtained protection against further proceedings. The period consumed in such proceedings cannot, in the circumstances of the present case, be permitted to operate to the prejudice of the statutory proceeding in the manner apprehended by the appellant.”
Holding that the single judge had “adopted an appropriate course by permitting the statutory process to continue while preserving the appellant’s right to raise all its factual and legal defenses,” the Bench dismissed the appeal and affirmed the August 10, 2026 judgment in its entirety.
Why The GSTR-2A ITC Mismatch Judgment Matters
GSTR-2A mismatch notices are among the most common GST disputes, and taxpayers often go straight to the High Court arguing that a buyer cannot be penalised for a supplier’s lapse. The ruling does not reject that argument on merits; the Bench accepted that ITC cannot be decided from one electronic statement alone. What it makes clear is the forum: a show cause notice issued with jurisdiction will not be quashed in writ proceedings merely because the taxpayer has a strong defence, and precedents such as National Plasto Molding must be pressed before the adjudicating officer.
Taxpayers who secure an interim stay should also note that the time spent in court may be excluded from the limitation for completing the demand.
Case Title: M/s Surya Business Private Limited v. State of Assam and Others [WA No. 321 of 2026]
Neutral Citation: 2026:GAU-AS:13966-DB
Bench: Chief Justice Ashutosh Kumar and Justice Arun Dev Choudhury, Gauhati High Court
Date of Judgment: September 22, 2026
Appearances: Advocates Ankit Kanodia and Zeehan Islam for the Appellant; Standing Counsel B. Choudhury, Finance and Taxation Department, Assam, and Advocate M. Bhuyan for the Respondents