The Delhi High Court in Bharti Airtel Ltd. v. Union of India [WP(C) 6345/2018] considered the validity of CBIC Circular No. 26/26/2017-GST dated 29.12.2017 which restricted rectification of errors in Form GSTR-3B to the period in which the error is noticed and corrected, by way of net reporting, and not correction in the period to which the original return relates. In reading the scheme of return filing as provided within the Central Goods and Services Tax Act, 2017 (“CGST Act”), the High Court, vide order dated 05.05.2020, allowed the Petition and quashed the Circular dt. 29.12.2017 as ultra vires the statutory provisions.
Background
The originally envisaged scheme of GST returns is of
relevance to the matter at hand. Section
39 of the CGST Act provides for furnishing of a consolidated return,
intended to be Form GSTR-3. Sub-section (9) thereof states that any omissions
in such return may be rectified “in the
return to be furnished for the month or quarter during which such omission or
incorrect particulars are noticed”. This language was sought to be amended
to “in such form and manner as may be
prescribed” by the Central Goods and Services Tax (Amendment) Act, 2018.
However, this amendment is yet to be notified. The summary filing of Form
GSTR-3B has been provided under rule
61(5) of the Central Goods and Services Tax Rules, 2017.
Circular No. 7/7/2017-GST dated 01.09.2017
was issued to provide a guide to reporting and system reconciliation of returns
in Forms GSTR-1 (outward supplies), GSTR-2 (inward supplies) and GSTR-3
(consolidated report of inward and outward supplies for discharge of liability).
According to the Circular dated 01.09.2017, any rectifications in outward
liability or input tax credit (“ITC”)
would be made in the very month to which the liability or ITC pertains.
Although a simplified return in Form GSTR-3B was introduced for July, 2017
onwards, this was intended to be a stopgap arrangement. In fact, the Circular
dated 01.09.2017 provides for amendment of ITC incorrectly furnished in Form
GSTR-3B to be done in the final Form GSTR-3 on the basis of the system
reconciliation with Form GSTR-2.
Thereafter,
Circular No. 26/26/2017-GST dated
29.12.2017 was issued to keep the earlier Circular dated 01.09.2017 in abeyance
since all the returns had not been operationalised. The Circular dated
29.12.2017, impugned in the present matter, states that since Form GSTR-3B does
not allow reporting of differential figures in respect of previous months, the
figures must be reported on a net basis in the return of the month in which the
error is noticed and rectification being made.
Facts
The present matter in respect of the Petitioner pertains
to the period between July, 2017 and September, 2017. Since Form GSTR-2A was
not operational on the GST portal at the time, the Petitioner could not
reconcile the ITC available to it on the system and had resorted to availing
ITC based on its own conservative estimate and discharging its liability in
cash.
However, upon operationalisation of the Form GSTR-2A,
the Petitioner discovered that it was eligible to avail a substantially higher
amount of ITC for July, 2017 to September, 2017. Being unable to amend the
returns filed for that period, the Petitioner is forced to claim residual ITC
in future returns and adjust the same against future output liability in terms
of the Circular dated 29.12.2017. However, due to lowered tariffs in the
telecom sector, the Petitioner faces a reduced
output liability and is unable to exhaust the residual
ITC. In contrast, amendment of returns for July, 2017 to September, 2017 would
allow the ITC to be availed in the correct months and reduce the Petitioner’s
cash outflow for those months.
Judgment
The High Court observed that the statutory scheme intended to
create an infrastructure whereby
reported details are auto-populated and reconciled through the IT system before
being verified, modified and filed by the taxpayer. Therefore, this system is not merely procedural but
creates a statutory right of such facility in favour of the taxpayer so that
the correctness of reported data may be authenticated. In this regard, the
judgment notes that the Department has failed in operationalisation of the
original scheme of the CGST Act and cannot take benefit of its own lapses to
deprive the Petitioner of its substantive right to rectification of the returns.
Analysing
the limited scope of refund provisions under the CGST Act, the High Court found
that there is no alternate remedy
available in the Petitioner’s case for reduction of the cash liability, other
than rectification of the returns for the prior period. Additionally, the
judgment notes a lack of any cogent rationale on part of the Department in
disallowing such rectification.
Subordinate legislation in
the form of rules or departmental circulars cannot restrict or conflict with
the substantive law laid down by statute. In view of
this, the Delhi High Court ruled that the Circular dated 29.12.2017 be read
down to the extent that it disallows rectification of Form GSTR-3B in the
return of the month to which the error relates.
TBM Comments
Although the judgment places considerable reliance on
the factual background in this case, it has categorically observed the Circular
dated 29.12.2017 to be ultra vires the
explicit scheme of the CGST Act. The pronouncement may come as a relief to
taxpayers who have been riddled with technical and procedural setbacks since
the implementation of the GST regime.
However, the matter at hand pertains to a period prior to
introduction of Form GSTR-2A on the portal. Although filing of Forms GSTR-2 and
GSTR-3 remains suspended, the
availability of inward supplies in Form GSTR-2A is not a factor considered in
the instant case. Amendment to
section 39(9) of the CGST Act, as and when notified, may also pose a hindrance to
this applicability of this judgment as precedent to any prospective scenarios.
However, the implementation of the new
returns system may potentially circumvent the need for such clarification
altogether since retrospective amendment of the return is allowed and
system reconciliation is proposed to be made available for inward supplies.
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