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December 21, 2020

SC stays High Court’s order on Bharti Airtel claiming Rs 923 crore GST refund by revising GSTR3B

by CA Shivam Jaiswal in Income Tax

SC stays High Court’s order on Bharti Airtel claiming Rs 923 crore GST refund by revising GSTR3B

When one hears the word ‘refund’, we feel fortunate that we are going to be united with our funds which were once paid as taxes. There are many situations where a refund arises in direct as well as indirect taxation. Understanding the refund norms and criteria’s is extremely important so that we do not excessively partake with our money.

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.

Section 17(5) pertains to blocked credit under CGST Act which states the situations where input tax credit shall not be available.

Certain situations when ITC cannot be claimed:

  • A person cannot avail ITC wherein the given motor vehicle is used to transport people and has a seating capacity of less than or equal to 12 +1 (driver)
  • A person cannot claim ITC for the tax paid for the following:
    • Food and beverages
    • Outdoor catering
    • Beauty treatment
    • Health services
    • Cosmetic and plastic surgery
  • Services of general insurance, servicing, repair and maintenance
  • Sale of membership in a club, health, fitness centre
  • Rent-a-cab services, life insurance, health insurance
  • Travel, benefits extended to employees on vacation such as leave or home travel concession.
  • Works contract services for construction of immovable property
  • Construction of immovable property on own account
  • Composition scheme
  • Non residents
  • Supply for personal use
  • Free samples and goods destroyed
  • Restaurant services

Recently, the Delhi High Court allowed Bharti Airtel Ltd. to rectify GST returns filed between July and September 2017 after the telecom operator said it paid excess tax on inputs in absence of a purchase-related tax return form. The Supreme Court on Thursday stayed the Delhi High Court order, allowing Bharti Airtel Ltd to claim Rs 923 crore in tax refunds by rectifying its GST returns for July to September 2017. 

What was the claim of Bharti Airtel?

  • The Sunil Mittal-controlled carrier said it paid an excess tax of Rs 923 crore as the details of the input tax credit.
  • The ITC during the period was offered based on estimates on account of non-operationalisation of the GSTR-2A form by the government.
  • So, it underreported its claim for credit.
  • The original scheme of the CGST Act provided for forms GSTR-1 with the details of outward supplies by a dealer, and GSTR-2 that had the inward supplies data of the other dealer to avail the benefit the input tax credit.
  • GSTR-3 electronically collated these details and the monthly tax return was to be filed based on the calculation in form 3.
  • While forms 2 and 3 were not operationalised, form-2A was introduced in October 2018 for availing input tax credit and GSTR-3B to file summary returns of the monthly tax.
  • In the absence of the GSTR-2A form during July-September 2017, Bharti Airtel submitted the input tax credit details based on estimates.
  • And in October 2018, the telecom service provider said, it noticed the underreporting and sought to file the rectified returns.
  • The company argued that the central government failed to introduce GSTR-2 and 3 as mandated under the CGST Act and instead introduced GSTR-3B in the interim to file summary returns.
  • The GSTR-3B form required data to be filled in manually and does not permit data validation before it is uploaded.
  • The inability of the respondents to run their IT system as per the structure provided under the CGST Act could not prejudice the rights of a registered person.

What was the claim of the Government?

  • The central government, however, opposed the carrier’s plea and said the rectification of mistakes of an earlier tax period could not be done in any subsequent period.
  • The government had contended that Bharti Airtel had under-reported input tax credit from July to September 2017.
  • The telco contested this argument saying that it had paid excess tax of Rs 923 crore on inputs based on estimates since the GSTR-2A form was not operational during the error period.

Observations of the High Court

  • Indisputably, if the statutorily prescribed returns, GSTR-2 and GSTR-3 had been operationalised by the government, the petitioner would have known the correct ITC amount available to it in the relevant period, and could have discharged its liability through ITC.
  • As a consequence, the deficiency in reporting the eligible ITC in the months of July-September 2017 in the form GSTR-3B resulted in excess payment of cash by the petitioner.
  • The High Court found favour in the arguments put forward by Bharti Airtel. The high court asked the central government to verify the refund claim after the rectified return is filed.
  • The High Court held that the rectification of the return for that very month to which it related was imperative and any restriction on this rectification was ultra vires the provisions of CGST Act and contrary to Articles 14, 19 and 265 of the Constitution of India.

Order by Supreme Court

The Supreme Court stayed the judgment of Delhi High Court in the case of Bharti Airtel wherein Court had allowed Petitioner to rectify Form GSTR-3B for the period to which the error relates. The three-judge bench while listing the matter at the first week of March 2021, granted the interim relief to the department by staying the judgment of Delhi High Court.

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