How is GST ITC allowed by SC in Bharti Airtel case instead of Refund? – Case Analysis
Supreme Court set aside order of Delhi HC and disallowed refund of Rs 923 Crore to Bharti Airtel Ltd. & Ors (of India)
In a very interesting case of Union of India Vs Bharti Airtel Ltd. & Ors the Supreme court set aside the order of the Delhi High Court disallowing Bharti Airtel Rs. 923 Crore refund and rectification of Form GSTR3B from July 2017 to September 2017. It was held that rectification in Form GSTR-3B could be allowed only in the month in which the errors are noticed and not in the month to which the error/omission pertains.
The case of Union of India Vs Bharti Airtel Ltd. & Ors (of India):
Facts of the case:
- Bharti Airtel had registered under the Goods & service tax regime and had opted for centralized registration in all 29 states and 7 union territories.
- When the GST portal was introduced, there were glitches and the GSTR2A and GSTR3 return were non-functional and instead of GSTR3 return GSTR3B was to be filed.
- Bharti Airtel also filed its GSTR3B returns from July 2017 to September 2017 on self-estimated basis and had no scope of verifying ITC from GSTR2A since it was non- operational then.
- However, this led to omission of ITC amounting to Rs.923 Crores which was discovered later in September 2018 when Form GSTR2A was functional.
- Further this gave rise to surplus ITC which was unutilised and due to reduction in tariff rates in the telecom sector the output liability of the company substantially declined thereby, increasing the inflow and gap of surplus and unutilised ITC which would grow eventually.
- Petition was filed by Bharti Airtel before the Delhi High Court seeking rectification of Form GSTR3B of relevant months so that ITC could be claimed in respective period and the cash which was paid as tax could be claimed as refund.
- This petition was allowed by the Delhi High Court stating that there is no provision under the GST Act which restricts rectification of Form GSTR3B.
- Aggrieved by the decision of the Delhi High Court the Central Government moved to the Supreme court challenging the order of grant of refund by the Delhi High Court.
- The Supreme court quashing the decision of the Delhi High Court disallowed the plea for refund of Rs 923 of Bharti Airtel.
Questions that can run through one’s mind:
- Is rectification of errors permissible only at initial stages under the GST law?
- Can the Centre be held accountable for non-operational GSTR2A until 2018?
- Will the supreme court uphold the decision of the Delhi High Court or will it be disallowed?
- Is claiming of omitted ITC which was unnoticed be allowed for rectification and refund for the same be availed?
- Section 39(9) of the CGST Act, 2017 provides that, “Subject to the provisions of sections 37 and 38, if any registered person after furnishing a return under sub-section (1) or sub-section (2) or sub-section (3) or sub- section (4) or sub-section (5) discovers any omission or incorrect particulars therein, other than as a result of scrutiny, audit, inspection or enforcement activity by the tax authorities, he shall rectify such omission or incorrect particulars in the return to be furnished for the month or quarter during which such omission or incorrect particulars are noticed, subject to payment of interest under this Act:
Provided that no such rectification of any omission or incorrect particulars shall be allowed after the due date for furnishing of return for the month of September or second quarter following the end of the financial year, or the actual date of furnishing of relevant annual return, whichever is earlier
- Section 41(1) of the Act provides that subject to such conditions and restrictions as may be prescribed, registered person would be entitled to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger.
- Section 49(2) provides that input tax credit as self-assessed in the return of the registered person would be credited to his electronic credit ledger in accordance with Section 41 or section 43A, to be maintained in such manner as may be prescribed.
- Section 59: Every registered person shall self-assess the taxes payable under this Act and furnish a return for each tax period as specified under section 39.
- Circular No. 7/7/2017-GST, dated 01-09-2017 provided that any differences in the details of outward supplies and input tax credit can be corrected reported in Form GSTR-3 of that very month. This circular was in line with the system-based reconciliation of information furnished in Form GSTR 1, 2 & 3B.
- The above circular was kept in abeyance till such time that Form GSTR-2 and 3 are operationalized vide Circular No. 26/26/2017-GST, Dated 29-12-2017. It was further provided that Form GSTR-3B can be corrected only in month in which the errors were noticed
Arguments and discussions:
1. The company put forth its argument stating that, excess payment of tax in cash had gone unnoticed since Form GSTR3B is filed on self-assessment basis and there was no provision for checks or validation of data from the systems end. Had the Forms GSTR-2A, GSTR-2 & GSTR-3 been in operational condition it would have in advanced alarmed concerning the mistake of omission of ITC and instead of paying cash the company would use the ITC credit to set of the liability. The company further stated that the new system of GST has enabled the validation of the data filled by the registered person in the month itself. Mechanism provided under Section 37 & Section 38 are not put in place, therefore, rectification under Section 39(9) would not be applicable where Form GSTR-3B is filed.
2. To the above argument the centre argued that every registered person is having an obligation to maintain its accounts records and every transaction in order to determine its output tax liability and its input tax credit and make a complete self-assessment of all the relevant transactions before paying the tax against the output tax liability. The portal is just a platform that enables to bring all the registered persons under one common roof and it does not free the registered person from self-assessment of tax to pay the output liability. Under section 39 GSTR3B has always been treated as a return in itself only until GSTR3 is operationalised. It is at the option of the registered person to chose to either make payment by cash or by utilising the ITC. Rectification of Form GSTR3B will enable the company to avail ITC credit and the tax paid earlier can be refunded. However, such provision of swapping of entry in Electronic Cash ledger with Electronic Credit Ledger is not allowed under the GST Law. Further any changes or modifications made in the original return of the supplier, would require the recipient to make relevant changes furnished by the recipient in Form GSTR3B and increase compliance thereby creating a chaos.
Observations, Order and Judgement by SC:
1. Form GSTR2A is only a facilitator for taking an informed decision while doing such self-assessment. Non-performance or non-operability of Form GSTR2A or for that matter, other forms, will be of no avail because the dispensation stipulated at the relevant time obliged the registered person to submit returns on the basis of such self-assessment in Form GSTR3B manually on electronic platform. The provision contained in Section 39(9) of the 2017 Act and Rule 61 of the Rules framed thereunder, as applicable at the relevant time, apply with full vigor to the returns filed by the registered person in Form GSTR3B.
2. The registered person is not denied of the opportunity to rectify omission or incorrect particulars, which he could do in the return to be furnished for the month or quarter in which such omission or incorrect particulars are noticed. Thus, it is not a case of denial of availment of ITC as such. It is only a postponement of availment of ITC. The ITC amount remains intact in the electronic credit ledger, which can be availed in the subsequent returns including the next financial year.
3. Despite the availability of funds in the electronic credit ledger, the registered person opts to discharge OTL by paying cash. That is a matter of option exercised by the registered person on which the tax authorities have no control, whatsoever, nor they have any role to play in that regard.
4. Further, there is no express provision permitting swapping of entries effected in the electronic cash ledger vis-a-vis the electronic credit ledger or vice versa.
5. Despite such an express mechanism provided by Section 39(9) read with Rule 61, it was not open to the High Court to proceed on the assumption that the only remedy that can enable the assessee to enjoy the benefit of the seamless utilization of the input tax credit is by way of rectification of its return submitted in Form GSTR3B for the relevant period in which the error had occurred. Any unilateral change in such return as per the present dispensation, would have cascading effect on the recipients and suppliers associated with the concerned transactions.
6. The matching and correction process happens on its own as per the mechanism specified in Sections 37 and 38, after which Form GSTR3 is generated for the purposes of submission of returns; and once it is submitted, any changes thereto may have cascading effect. Therefore, the law permits rectification of errors and omissions only at the initial stages of Forms GSTR1 and GSTR3, but in the specified manner.
7. The direction issued by the High Court being in the nature of issuing writ of mandamus to allow the writ petitioner to rectify Form GSTR3B for the period July to September 2017, in the teeth of express statutory dispensation, cannot be sustained.
8. The Supreme Court allowed the appeal of the central government thereby disallowing Rs 923 crore GST refund to Bharti Airtel.