Bonafide clerical errors in GSTR-1 cannot be the sole basis for issuance of SCN when its correction causes no revenue loss

The Hon’ble Karnataka High Court in the case of HINDUSTAN CONSTRUCTION COMPANY LTD. Versus UNION OF INDIA, STATE OF KARNATAKA AND ASSISTANT COMMISSIONER OF COMMERCIAL TAXES, BENGALURU - 2026 (3) TMI 1506 - KARNATAKA HIGH COURT held that a show cause notice issued solely on the ground that the assessee was not entitled to correct Form GSTR-1 by treating B2C supplies wrongly reported as B2B is unsustainable in law and liable to be quashed, and the petitioner is entitled to amend/rectify the returns.

Facts:

Hindustan Construction Company Ltd. (“the Petitioner”) filed GST returns for the period July 2017 to March 2018 and subsequently realised that errors had occurred in Form GSTR-1 wherein supplies which ought to have been declared as B2C were wrongly reported as B2B, and accordingly made necessary corrections on May 06, 2019.

Union of India and State GST authorities (“the Respondent”) issued a show cause notice under Section 73(1) of the KGST Act on the ground that the petitioner was not entitled to make such corrections and initiated proceedings based on the audit observations.

The Petitioner contended that the corrections were permissible, bona fide and necessary to reflect the true nature of supplies and that proceedings initiated without considering the amendments were illegal.

The Respondent contended that the Petitioner was not entitled to rectify the returns and the show cause notice was valid, and therefore the writ petition deserved dismissal.

Aggrieved by the issuance of the impugned notice and audit report ignoring the corrections and proposing tax on turnover not actually effected, the Petitioner approached the Court by way of a writ petition seeking quashing of the notice and consequential reliefs.

Issue:

Whether the Petitioner is entitled to correct Form GSTR-1 to rectify B2C supplies wrongly reported as B2B and whether the show cause notice issued solely denying such correction is sustainable in law?

Held:

The Hon’ble Karnataka High Court in HINDUSTAN CONSTRUCTION COMPANY LTD. Versus UNION OF INDIA, STATE OF KARNATAKA AND ASSISTANT COMMISSIONER OF COMMERCIAL TAXES, BENGALURU - 2026 (3) TMI 1506 - KARNATAKA HIGH COURT held as under:

• Observed that, the Petitioner had filed returns and subsequently realised errors in GSTR-1 and made corrections, yet proceedings were initiated solely on the ground that such corrections were impermissible.
• Observed that, courts across jurisdictions including the Hon’ble Bombay High Court in Aberdare Technologies Pvt Ltd & Anr Versus Central Board of Indirect Taxes & Customs & ors - 2024 (8) TMI 142 - BOMBAY HIGH COURT and other High Courts have consistently held that bona fide errors without revenue loss should be permitted to be corrected.
• Noted that, the sole basis of the impugned show cause notice was the alleged ineligibility to make corrections, which is contrary to the settled judicial view permitting rectification of bona fide errors.
• Held that, the impugned show cause notice and proceedings pursuant thereto are liable to be quashed.
• Directed that, the writ petition is allowed and the respondents are required to permit the petitioner to amend/rectify Form GSTR-1.

Our Comments:

In the case of M/s. Orient Traders Versus THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES (AUDIT) -3, Joint Commissioner Of Commercial Taxes Bengaluru - 2023 (1) TMI 838 - KARNATAKA HIGH COURT, this court held that inadvertent errors in GST returns during the initial GST regime should be viewed leniently and rectification must be permitted where no cascading effect or revenue loss arises. The reasoning adopted was that GST compliance involves technological transition and bona fide errors are inevitable; hence strict denial of rectification defeats the scheme of accurate tax reporting.

Similarly, in M/s. Wipro Limited India Versus The Assistant Commissioner Of Central Taxes Bengaluru, The Goods And Services Tax Council Union Of India, The State Of Karnataka, M/s. ABB Global Industries And Services Private Limited - 2023 (1) TMI 499 - KARNATAKA HIGH COURT the Court applied Circular No. 183/15/2022-GST dated December 27, 2022 and held that rectification of invoice errors and GSTIN mismatch should be allowed following the procedure prescribed in the circular, recognising bona fide mistakes and ensuring credit flow.

Relevant Provisions:

Section 37(3) of the CGST Act, 2017

“37. Furnishing details of outward supplies. –

(3) Any registered person, who has furnished the details under sub-section (1) for any tax period, shall, upon discovery of any error or omission therein, rectify such error or omission in such manner as may be prescribed, and shall pay the tax and interest, if any, in case there is a short payment of tax on account of such error or omission, in the return to be furnished for such tax period:

Provided that no rectification of error or omission in respect of the details furnished under sub-section (1) shall be allowed after the thirtieth day of November following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier.

Provided further that the rectification of error or omission in respect of the details furnished under sub-section (1) shall be allowed after furnishing of the return under section 39 for the month of September, 2018 till the due date for furnishing the details under sub-section (1) for the month of March, 2019 or for the quarter January, 2019 to March, 2019.”

Section 39(9) of the CGST Act, 2017

“39. Furnishing of returns.-

(9) Where any registered person after furnishing a return under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (4) or sub-section (5) discovers any omission or incorrect particulars therein, other than as a result of scrutiny, audit, inspection or enforcement activity by the tax authorities, he shall rectify such omission or incorrect particulars in the return to be furnished for the month or quarter during which such omission or incorrect particulars in such form and manner as may be prescribed, subject to payment of interest under this Act:

Provided that no such rectification of any omission or incorrect particulars shall be allowed after the thirtieth day of November following the end of the financial year to which such details pertain, or the actual date of furnishing of relevant annual return, whichever is earlier.”

 (Author can be reached at [email protected])