2023 (12) TMI 824 - HC - GST

HC grants retrospective GST registration from July 2017 due to migration errors and improper ISD cancellation

The HC allowed the petition seeking retrospective GST registration from 1.7.2017 due to migration errors from erstwhile tax laws. The petitioner was ... Input Service Distributor - provisional migration and final registration under Section 139 - filing of returns: Form GSTR-3B versus Form GSTR-6 - procedural law as handmaid of substantive justice - machine processing errors of the GSTN and judicial correction - availment of Input Tax Credit contingent on deposit and return filingProvisional migration and final registration under Section 139 - Input Service Distributor - machine processing errors of the GSTN and judicial correction - procedural law as handmaid of substantive justice - Second registration granted on 23.10.2017 is to be treated as effective from 1.7.2017 on a deemed basis in view of machine errors and bona fide conduct - HELD THAT: - Court found that the original registration (GSTIN ending H2Z1) was granted and recorded as an Input Service Distributor though the petitioner had also disclosed the main taxable activity of Manpower Supply Services in the application and registration records. The GSTN portal and consequent machine-processing permitted an ISD registration to arise in the absence of any pre-existing main/business registration, allowed tax deposits against the ISD registration and generated a notice under section 46 for alleged non filing of GSTR 3B - anomalies which the Court held to be attributable to machine error of the GSTN. Procedural rules implemented by automated processes must yield to substantive justice; where machine-enabled procedural defects produced an unintended denial of rights despite bonafide conduct by the petitioner, equitable relief is warranted. On these grounds the Court directed that the second registration be treated as effective from 1.7.2017 on a deemed basis and granted appropriate relief to remedy the consequences of the portal-induced errors. [Paras 33, 34, 35, 36, 37]Deemed effective date of second registration fixed as 1.7.2017; petition allowed on this ground and GSTN/authorities directed to take steps to remedy portal caused anomaliesFiling of returns: Form GSTR-3B versus Form GSTR-6 - Input Tax Credit availment contingent on deposit and return filing - machine processing errors of the GSTN and judicial correction - Entitlement of petitioner no.2 to Input Tax Credit for supplies dated July-August 2017 is not finally adjudicated but remitted for verification conditioned upon compliance with return filing and deposit requirements - HELD THAT: - The Court held that consequential grant of ITC to petitioner no.2 for supplies made in the period 1.7.2017 to 31.8.2017 depends on whether the due tax on the revised tax invoices (issued after fresh registration on 23.10.2017) was deposited along with the return for October 2017. If the due tax was timely deposited when filing the relevant return, the GSTN and respondents are to make appropriate arrangements to allow availment of ITC by petitioner no.2 by modifying GSTR 1/GSTR 2A entries and giving effect to the revised invoices. If there were delays or non compliance in deposit/return filing, relief will be modified accordingly. The Court directed the concerned officer to undertake this verification and, where software limitations exist, to pass administrative orders overruling machine dictates to implement this declaration. [Paras 38, 39, 40, 41]Issue remanded for verification: conditional direction that ITC shall be allowed if due tax was deposited with the October 2017 return and corresponding electronic records are adjusted; otherwise relief to be modified accordinglyFinal Conclusion: Writ petition allowed: second registration to be treated as effective from 1.7.2017 (deemed); entitlement to Input Tax Credit for July-August 2017 is subject to verification of timely deposit and return filing and, if compliances are satisfied, respondents/GSTN to modify electronic records and permit ITC; exercise to be completed expeditiously and GSTN/CBIC communicated for remedial directions. Issues Involved:1. Retrospective effect of new GST registration.2. Denial of Input Tax Credit (ITC) by the Authority for Advance Ruling.3. Procedural errors in GST registration and tax deposit.Summary:Retrospective Effect of New GST Registration:The petitioner sought a direction for the new GST registration granted on 23.10.2017 for 'Manpower Supply Services' to be treated with retrospective effect from 1.7.2017, the date of the original registration. The court noted that the petitioner was initially registered under the Finance Act, 1994, and auto-migrated under the GST Act by virtue of Section 139. The petitioner was obligated to seek fresh registration under Sections 22 and 25 of the Act, leading to the dispute. The court found that the petitioner had disclosed his business activity of 'Manpower Recruitment Agency' while obtaining the original registration, and the revenue authorities acted on this information. The court concluded that the initial registration error was a mistake apparent on record, attributable to the GSTN portal's deficiencies.Denial of Input Tax Credit (ITC):The petitioner challenged the Authority for Advance Ruling's order dated 17.12.2019, which denied ITC benefits for transactions supported by revised Tax Invoices issued under the new registration. The court observed that the petitioner had disclosed his main business activity and deposited tax against the ISD registration. The court emphasized that the ISD registration could not be used for taxable business transactions, and the tax deposit against it was contrary to statutory law. The court directed that the second registration be treated as effective from 1.7.2017 to ensure substantive justice and allowed the petitioner to claim ITC benefits if the due tax on revised Tax Invoices was deposited along with the return for October 2017.Procedural Errors in GST Registration and Tax Deposit:The court highlighted several procedural errors, including the GSTN portal allowing ISD registration without pre-existing business registration, permitting tax deposit against ISD registration, and issuing a show-cause notice for non-filing of monthly returns on GSTR-3B by an ISD. The court noted that these errors were attributable to the GSTN portal and directed appropriate remedial measures. The court emphasized the need for human intervention to correct machine errors and ensure that procedural laws subserve substantive justice.Conclusion:The court allowed the petition, directing that the new GST registration be treated as effective from 1.7.2017 and permitting the petitioner to claim ITC benefits subject to verification of tax deposit compliance. The court emphasized the importance of correcting procedural errors to ensure justice and directed the Central Board of Indirect Taxes & Customs (CBIC) to issue necessary directions to remedy similar situations caused by machine errors.