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 wrongly granted Input Service Distributor (ISD) registration despite not meeting requirements, creating a chain of errors. The court found this constituted a "mistake apparent on record" caused by machine processing errors in the GSTN system. Despite non-filing of monthly returns, the ISD registration cancellation was deemed improper as no legal requirement existed for ISDs to file Form GSTR-3B. The court granted equitable relief, ordering the second registration be effective from 1.7.2017 on deemed basis, with corresponding modifications to GSTR-1 and GSTR-2A returns to ensure substantive justice.

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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.

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