2020 (5) TMI 169 - HC - GST

Court permits rectification of Form GSTR-3B for July-Sept 2017 period, emphasizes petitioner's substantive right

The court allowed the petition, permitting the petitioner to rectify Form GSTR-3B for the relevant period from July to September 2017. The respondents ... Rectification of returns - system-based reconciliation of GSTR returns - subordinate legislation must conform to statute - summary return (Form GSTR-3B) versus statutorily envisaged returns - refund and adjustment mechanism for input tax creditRectification of returns - summary return (Form GSTR-3B) versus statutorily envisaged returns - system-based reconciliation of GSTR returns - subordinate legislation must conform to statute - Validity of para 4 of Circular No. 26/26/2017-GST insofar as it restricts rectification of Form GSTR-3B to the month in which the error is noticed and precludes correction in the tax period to which the error relates. - HELD THAT: - The statutory scheme of the CGST Act contemplates electronic, system-based reconciliation where outward supplies (GSTR-1) auto-populate inward supplies (GSTR-2/2A) and feed into the monthly return (GSTR-3), permitting verification and correction for the tax period itself. Due to non-operationalization of GSTR-2 and GSTR-3, the Government introduced the summary Form GSTR-3B which lacks the in-built validation envisaged by the Act. Circular No.7/7/2017-GST recognised reconciliation based on amended ITC of the relevant month, but Circular No.26/26/2017-GST (para 4) restricted rectification to the month in which the error is noticed. That restriction is inconsistent with the scheme and rights created by the CGST Act and amounts to subordinate executive action that cannot whittle down statutory rights. The court therefore finds para 4, insofar as it prevents correction of GSTR-3B for the tax period to which the data relates, to be arbitrary and contrary to the Act, and reads it down to permit rectification for the relevant tax period. [Paras 20, 21]Para 4 of Circular No. 26/26/2017-GST dated 29.12.2017 is not in consonance with the CGST Act to the extent it restricts rectification to the month of notice; it is read down to permit rectification of Form GSTR-3B in respect of the tax period to which the error relates.Rectification of returns - refund and adjustment mechanism for input tax credit - Relief and procedure available to the petitioner to remedy excess cash payment arising from under-reporting of input tax credit for the relevant period. - HELD THAT: - Given the failure of the revenue to operationalize the statutory forms and the consequential inability of the petitioner to ascertain exact ITC in the relevant months, the petitioner has a substantive right to rectify GSTR-3B for July-September 2017 to reflect the ITC pertaining to those periods. Although refund and adjustment provisions exist, they do not necessarily redress the petitioner where accumulated ITC cannot be fully utilized because of sectoral tariff changes and other practical difficulties. The court therefore permits rectification for the relevant period and imposes a limited procedural obligation on the respondents to verify and give effect to the rectified returns within a fixed timeframe. [Paras 17, 24]Petitioner is permitted to rectify Form GSTR-3B for July, 2017 to September, 2017; upon filing the rectified returns respondents shall verify the claims and give effect to them within two weeks.Final Conclusion: The petition is allowed. Para 4 of Circular No.26/26/2017-GST is read down to the extent it prevents rectification of Form GSTR-3B in the tax period to which the error relates; Bharti Airtel Limited may rectify GSTR-3B for July-September 2017 and the respondents are directed to verify and implement the rectified returns within two weeks of filing. Issues Involved:1. Ultra vires Challenge: The validity of Rule 61(5) of the GST Rules, Form GSTR-3B, and Circular No. 26/26/2017-GST under the CGST Act and the Constitution.2. Rectification of Returns: The petitioner's right to rectify GST returns for the period of July to September 2017.3. Refund of Excess Taxes: Claim for refund of excess taxes paid due to errors in initial GST returns.4. Implementation of Statutory Forms: The failure of the government to operationalize Forms GSTR-2 and GSTR-3 as envisaged under the CGST Act.5. Compliance Burden: The impact of manual filing and lack of system checks on compliance and ITC claims.Detailed Analysis:1. Ultra vires Challenge:The petitioner challenged Rule 61(5) of the GST Rules, Form GSTR-3B, and Circular No. 26/26/2017-GST as ultra vires the CGST Act and contrary to Articles 14, 19, and 265 of the Constitution. The petitioner argued that these provisions prevented the correction of monthly GST returns, thereby hindering the refund of excess taxes paid. The court examined the statutory scheme of GST filings and the circumstances leading to the petitioner's situation, noting that the government's inability to operationalize Forms GSTR-2 and GSTR-3 led to the introduction of Form GSTR-3B, which lacked inbuilt checks and balances.2. Rectification of Returns:The petitioner sought to rectify errors in the GST returns filed for July to September 2017. The court noted that the statutory scheme under the CGST Act provided a facility for validation of monthly data through an IT system, which was not operationalized. The court found that the petitioner had a substantive right to rectify ITC for the period to which it relates and that the restriction imposed by Circular No. 26/26/2017-GST was arbitrary and contrary to the provisions of the Act. The court allowed the petitioner to rectify Form GSTR-3B for the relevant period and directed the respondents to verify and give effect to the rectified returns.3. Refund of Excess Taxes:The petitioner claimed a refund of approximately Rs. 923 crores paid in excess due to errors in initial GST returns. The court noted that the petitioner was compelled to discharge its tax liability in cash due to the non-operationalization of Forms GSTR-2 and GSTR-3, which prevented accurate ITC reporting. The court found that the refund provisions under Section 54 of the CGST Act did not entirely remedy the petitioner's situation and that the petitioner could not be deprived of the benefit of seamless ITC utilization due to the government's failure to operationalize the statutory forms.4. Implementation of Statutory Forms:The court observed that the government's failure to operationalize Forms GSTR-2 and GSTR-3, as envisaged under the CGST Act, led to the introduction of Form GSTR-3B, which was a truncated version without inbuilt checks and balances. The court found merit in the petitioner's argument that if the statutory forms had been operationalized, the petitioner would have known the correct ITC available and could have discharged its liability through ITC instead of cash.5. Compliance Burden:The court acknowledged that the manual filing of Form GSTR-3B, introduced due to the non-operationalization of Forms GSTR-2 and GSTR-3, resulted in errors and compliance burdens. The court noted that the statutory scheme provided for a self-policing system with verification and validation of data, which was not implemented due to the lack of technical infrastructure. The court found that the restriction on rectification imposed by Circular No. 26/26/2017-GST was not in consonance with the provisions of the CGST Act and declared it arbitrary and contrary to the Act.Conclusion:The court allowed the petition, permitting the petitioner to rectify Form GSTR-3B for the relevant period from July to September 2017. The respondents were directed to verify the rectified returns and give effect to them within two weeks. The court emphasized that the government could not deprive the petitioner of the benefits due to its failure to operationalize the statutory forms and that the petitioner had a substantive right to rectify ITC for the period to which it relates.