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November 9, 2020

Assessee should not be prejudiced from availing ITC that they are otherwise legitimately entitled to – Madras HC

by CA Shivam Jaiswal in GST

Assessee should not be prejudiced from availing ITC that they are otherwise legitimately entitled to – Madras HC

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

The GSTR-3B is a consolidated summary return of inward and outward supplies that the Government of India had introduced as a way to relax the requirements for businesses that have recently transitioned to GST. In other words, it is a simplified method that helps to declare the summary of GST liabilities for a given tax period. GSTR-1 is a monthly or quarterly return that should be filed by every registered dealer. It contains details of all outward supplies i.e sales. GSTR 1 once filed cannot be revised. However, can an error which is inadvertently made in filing the GST Returns be corrected to avail the benefit of Input Tax Credit? Let us find out about the same in the case of Sun Dye Chem Vs The Assistant Commissioner (ST) (Madras High Court).

Facts of the Case:

  • The petitioner is a partnership firm, a registered dealer under the GST Act, 2017.
  • Regular returns of turnover are being filed computing the tax payable after setting off Input Tax Credit (ITC) as against the output tax liability. The ITC claimed is the cumulative amount of Central (CGST), State (SGST) and Intra-state (IGST).
  • Monthly returns were filed for the period August 2017 to December 2017 in the GST portal in Form GSTR-3B.
  • The returns were accompanied by annexures in Form GSTR-1 that reflected the total credit in regard to the transactions – CGST, SGST and IGST.
  • There was however, an error in reporting the credit in Form GSTR-1 in regard to the outward supplies and Intra-state sales were erroneously reported as inter-state sales, as a result the CGST and SGST credit was reflected in the IGST column.
  • The error was noticed by the petitioner when its customers brought to its notice the fact that the tax credit has been reflected in the IGST column instead of CGST/SGST columns posing a difficulty to the customers to avail the said credit.
  • The petitioner submitted a request for amendment of Form GSTR-1 that came to be rejected on the ground that there was no provision to grant the amendment sought, in any event, not after 31.03.2019 as Notification 71/2018 had extended the time for submission of the amended GSTR-1 till 31.03.2019, for the period 2017-18.
  • The petitioner was thus unable to correct the error.
  • The petitioner therefore, petitioned seeking a mandamus directing the Assistant Commissioner to permit it to correct Form GSTR-1 for the period August 2017 to December 2017 and redistribute the credit available from the IGST column to the CGST and SGST fields.

Observations of the High Court (HC) on the Provisions of Law

  • The scheme for filing of Returns is set out under Chapter IX of the Act and the procedure for availment of credit relating to outward and inward supplies is provided in Sections 37 and 38respectively.
  • Section 37(1) states that every registered person other than an input service distributor, a non-resident taxable person and a person paying tax under the provisions of Sections 10, 51 or 52 shall electronically furnish details of onward supply of goods or services before the 10th of every month succeeding the tax period in question.
  • Rule 59(1) of the CGST Rules 2017 corresponding to Section 37(1) prescribes the format as Form GST 1.
  • The aforesaid details are also to be communicated to the recipient in the manner prescribed.
  • Section 37(2) states that every registered person (recipient) who has been communicated the details (in terms of Section 38(3), relating to any modification, deletion or inclusion by the recipient of the forms or details pertaining to inward supplies of input service distributor under Section 38(4)), shall either accept or reject the details so communicated within a stipulated period and if accepts the same, the details furnished under Section 37(1) shall stand amended accordingly.
  • Rule 59(2) sets out the details that are to stand included in GSTR-1 including:
    1. invoice details of all inter and intra-state supplies effected to registered persons
    2. inter-state supplies of value more than two and a half lakh rupees effected to unregistered persons
    3. consolidated details of (1) and (2) as aforesaid and
    4. debit and credit notes, if any, issued in respect of the aforesaid invoices.
  • Rule 59(3) stipulated that the details of outward supplies furnished by the supplier shall be made available/communicated to the concerned registered persons/recipients in Form GSTR-2-A, 4-A and 6-A after the due date of filing Form GSTR-1.
  • Section 37(3) provided for the rectification of an error or any omission in a return filed under Section 37(1) and the proviso therein stated that no rectification of error or omission shall be allowed after the furnishing of a return under Section 39 for the month of September following the end of the financial year to which such details pertain or the filing of an annual return, whichever is earlier.
  • The second proviso, provided further that the rectification or omission in respect of 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 said details for the month of march 2019 or quarter 2019.
  • Admittedly in the present case, the time for rectification expired, after extension thereof, on 31.03.2019.
  • Section 38 stated that every registered person other than an Input Service Distributor or a non-resident taxable person or one paying tax under the provisions of Sections 10, 51 or 52 shall verify, validate modify or delete the details pertaining to outward supplies and credit and debit notes communicated under Section 37(1) to prepare the details of his inward supplies and credit or debit notes in respect of such supplies that have not been declared by the supplier under Section 37(1).
  • Section 38(2) stated that every registered person other than an input distributor or a non-resident taxable person or a person paying tax under the provisions of Section 10, 51 or 52 shall furnish electronically certain categories of inward supplies of taxable goods or services or both and the credit or debit notes received in respect of such supplies within a stipulated period in the prescribed manner.
  • The prescription is set out in Rule 60 dealing with form and manner of furnishing details of inward supplies in Form GSTR-2A.
  • Section 38(3) provides that the details of supplies modified, deleted or included by the recipient and furnished under Section 38(2) shall be communicated to the supplier in the prescribed manner.
  • Section 38(5) deals with the mismatch of particulars provided in terms of Section 38(2) and those mentioned in Sections 42 and 43 and states that upon discovery of any error or omission the registered person shall rectify the same.
  • The proviso states that no rectification shall be permitted after the expiry of the time beyond the financial year to which the details pertain or before the last date for furnishing of theannual return, which is earlier.
  • Section 39(1) requires the filing of a return in Form GSTR-3B.
  • A registered person who files a return under Section 39(1) involving intra-State outward supply is to indicate the collection of taxes customer-wise in monthly return in Form GSTR-1 and the details of tax payment therein are auto populated in Form GSTR -2A of the buyers.
  • Any mismatch between Form GSTR-1 and Form GSTR-2A was to be notified by the recipient by way of a tabulation in Form GSTR-1A.
  • Admittedly, Forms in GSTR-2A and GSTR-1A were yet to be notified as on that date.
  • The statutory procedure contemplated for seamless availmentwas, as on date, unavailable.

Observations of the High Court on the Present Case

  • Undoubtedly, the petitioner in this case had committed an error in filing of the details relating to credit.
  • What should have figured in the CGST/SGST column has inadvertently been reflected in the IGST column.
  • It was nobody’s case that the error was deliberate and intended to gain any benefit.
  • In fact, due to the error, the customers of the petitioner were denied credit which they claimed to be legitimately entitled to, owing to the fact that the credits stood reflected in the wrong column.
  • The present petition was filed, to ensure that the suppliers did not lose the benefit of that credit.
  • Admittedly, 31stMarch, 2019 was the last date by which rectification of Form – GSTR 1 could be sought.
  • However, the Forms, by filing of which the petitioner could have noticed the error and sought amendment, viz. GSTR-2A and GSTR-1A were yet to be notified.
  • Had the requisite Forms been notified, the mismatch between the details of credit in the petitioner’s and the supplier’s returns would have been noticed and appropriate and timely action could be taken.
  • The error was noticed only later when the petitioners’ customers brought the same to the attention of the petitioner.
  • In the absence of an enabling mechanism, HCwas of the view that assessee should not be prejudiced from availing credit that they were otherwise legitimately entitled to.
  • The error committed by the petitioner was an inadvertent human error and the petitioner should be in a position to rectify the same, particularly in the absence of an effective, enabling mechanism under statute.
  • The petitioner is permitted to re-submit the annexures to Form GSTR-3B with the correct distribution of credit between IGST, SGST and CGST within 4 weeks from date of uploading the order and the respondents were directed to take the same on file and enable the auto-population of the correct details in the GST portal.

In conclusion,assessee’s should not be prejudiced from availing credit that they are otherwise legitimately entitled to. If the error committed by the assessee is an inadvertent human error and the assessee should be in a position to rectify the same, particularly in the absence of an effective, enabling mechanism under statute.

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