Most people understand ITC in theory. But in real life, things go completely differently.
Why? Because:
- suppliers don’t file returns on time
- invoices don’t match
- businesses forget reversals
- exempt turnover confuses calculations
- capital goods get mixed use
- RCM rules change the ITC flow
- officers view ITC differently in scrutiny
That’s why real case studies help more than any theoretical explanation.
This blog gives you simple, practical, case studies on ITC so you can understand exactly:
- when ITC is allowed
- when it gets reversed
- how mismatches happen
- how officers calculate reversals
- how to avoid notices
Let’s begin.
Case Study 1: Supplier Filed GSTR-1 but Not GSTR-3B
Scenario: A business receives an invoice of ₹1,00,000 + ₹18,000 GST.
- Supplier uploads invoice in GSTR-1, hence it appears in GSTR-2A.
- But supplier does not file GSTR-3B for that month.
What taxpayer does:
Claims ITC because invoice appears in 2A.
System position:
- Invoice appears in 2A
- But does NOT appear in 2B
GST Rule:
Only 2B is the ITC document, not 2A.
Result:
- ITC not allowed
- GSTR-3B mismatch
- DRC-01B or scrutiny notice likely
Correct action:
- Do NOT take ITC until the invoice appears in 2B
- Push the supplier to file 3B
- If supplier is non-compliant → change vendor
Case Study 2: Goods Fully Received but Invoice Uploaded Wrong Month
- Company receives goods on 5th June.
- Invoice dated 3rd June.
- Supplier uploads invoice in July GSTR-1.
What happens:
Even though goods received in June, the invoice will appear in July 2B.
ITC Allowed?
Yes — in any month on or after July, because that is when invoice appears in 2B.
Mistake many accountants make:
- They claim ITC in June because goods received.
- BUT that ITC is not in June 2B → mismatch notice.
Correct approach:
✔ Claim ITC only in the month it appears in 2B.
Case Study 3: ITC Incorrectly Claimed on Partly Received Goods
- Company orders 100 laptops.
- Supplier sends invoice for all 100.
- Only 60 laptops delivered in June; remaining delivered in July.
ITC Allowed?
Only for 60 laptops — goods actually received.
ITC mistakenly claimed by accountants:
They claim ITC for all 100 laptops.
GST Rule:
ITC allowed only when goods are received, even partly.
Result:
- Excess ITC claim
- Mismatch in GSTR-9 vs books
- Possible reversal + interest
Case Study 4: ITC Taken on Proforma Invoice – Very Common Mistake
Supplier sends proforma invoice for ₹5 lakh + GST.
Accountant books ITC.
Reality:
Proforma invoice is NOT a valid GST document.
Result:
- ITC not allowed
- GST officer reverses entire credit
- Interest applicable from date of wrong claim
Good practice:
✔ Take ITC only on tax invoice or debit note.
Case Study 5: ITC Under RCM – Claimed Before Payment
Company receives:
- Legal fees invoice
- RCM applicable @18%
RCM amount = ₹18,000
Accountant books ITC instantly.
GST Rule:
RCM ITC is allowed only after tax is paid in cash, not before.
Wrong action:
ITC claimed before paying RCM in cash.
Result:
- DRC-01B for excess ITC
- RCM mismatch
Correct action:
✔ Pay RCM → claim ITC → set off liability using ITC
Case Study 6: ITC Reversal Not Done After 180 Days
- Invoice amount = ₹1,00,000 + GST ₹18,000
- Business does not pay supplier within 180 days.
GST Rule:
- Reverse ITC after 180 days.
- Reclaim after payment.
Common mistake:
Many businesses forget the 180-day rule.
Result:
- Notice for ITC excess claim
- Interest calculation
Case Study 7: Using CGST for SGST Liability (Wrong Utilisation)
Company has:
- CGST ITC: ₹20,000
- SGST liability: ₹20,000
Accountant wrongly adjusts CGST ITC to pay SGST.
GST Rule:
- CGST → SGST ❌ Not allowed
- SGST → CGST ❌ Not allowed
Result:
- System auto-rejects
- Officer sends notice during audit
Correct utilisation order:
- IGST first
- Then CGST for CGST
- SGST for SGST
Case Study 8: Common ITC Used for Taxable + Exempt Supplies (Rule 42)
A business provides:
- Taxable consultancy services
- Exempt export of services (conditions not met)
Total ITC on common services (rent, audit fees) = ₹1,00,000
Exempt turnover ratio = 30%
Rule 42 Formula:
- D1 = Common ITC × exempt turnover ÷ total turnover
- D1 = 1,00,000 × 30% = ₹30,000
ITC allowed:
₹70,000
Most common mistake:
Businesses forget to apply Rule 42 → claim full ITC
Result:
- GST officer detects exempt turnover
- Demands reversal + interest
Case Study 9: Capital Goods Used for Mixed Supplies (Rule 43)
- Capital goods purchased with GST = ₹1,20,000
- Useful life = 60 months
- Monthly ITC = 1,20,000 / 60 = ₹2,000
Exempt turnover ratio = 40%
Monthly reversal = 2,000 × 40% = ₹800
Common mistake:
Businesses claim full ITC and forget 60-month reversal.
During scrutiny:
Officer calculates full 60-month reversal → large tax demand.
Case Study 10: ITC Claimed After Section 16(4) Time Limit
- Invoice pertains to FY 2023-24.
- Supplier uploaded in June 2024.
Last date to take ITC: 30th November 2024
Accountant claims ITC in December 2024.
Result:
- ITC permanently ineligible
- Officer reverses ITC
- Interest becomes payable
Case Study 11: ITC on Building Renovation – Wrong Claim
Company renovates office interior:
- Tiles
- POP
- Furniture fixed to wall
- Civil work
GST = ₹4,00,000
Section 17(5):
ITC blocked if related to immovable property construction.
Result:
- Full ITC blocked
- GST officer asks reversal
Only loose furniture is eligible.
Case Study 12: ITC Mismatch in Import of Goods
- Company imports goods.
- IGST of ₹5,00,000 paid in bill of entry.
Accountant claims ITC from GSTR-2B but BOE not reflecting properly.
Mistake:
Customs data mismatch (wrong port/vendor code)
Result:
- ITC not reflected
- Auditor flags the mismatch
Correction:
- Amend BOE
- Re-file
- Match with ICEGATE data
Case Study 13: ITC Taken on Works Contract Service
Company pays for:
- Construction of office building
- GST on works contract = blocked u/s 17(5)
Mistake:
ITC claimed assuming “office building is for business.”
Result:
- 100% ITC disallowed
- Penalty & interest possible
Case Study 14: Employee-Related Expenses
Expenses like:
- Travel
- Hotel
- Meals
- Phone bills
Companies often claim ITC assuming it’s “for business.”
GST Rule:
Personal consumption → ITC blocked.
During scrutiny:
- Officer asks for expense classification
- Much of ITC gets reversed.
Case Study 15: Excess ITC Due to Duplicate Invoice Entry
Same invoice booked twice in accounting software → ITC claimed twice.
Result:
Portal mismatch Notice for excess credit One ITC entry must be reversed
Final Summary (Human Style)
Input Tax Credit is powerful. But with power comes complexity.
From these cases, one thing is clear:
“ITC problems don’t happen because law is unclear — they happen because suppliers, accountants, and businesses don’t follow the basic checks. ”
Most issues vanish if you:
- Trust only GSTR-2B
- Match books monthly
- Track payment within 180 days
- Reverse Rule 42/43 ITC
- Avoid blocked credits
- Keep vendors compliant
- Use correct utilisation order
Real-life ITC is not difficult — it’s mostly discipline and reconciliation.
