FIRST TIME IN THE HISTORY OF GST : RECTIFICATION OF GSTR-3B ALLOWED

First Time in the History of GST : Rectification of GSTR-3B Allowed

Case Name – BHARTI AIRTEL LIMITED V/S UNION OF INDIA

Context – Rectification of GST returns filed

Petitioner – BHARTI AIRTEL LTD

Respondent – UNION OF INDIA

Summary of the Case –

The delhi high court has allowed Bharti Airtel 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. Airtel in a statement said it has paid an excess tax of Rs.923 Crores and the tax paid can be adjusted against the future tax liabilities.

The division bench said, “Indisputably, if the statutorily prescribed returns, GSTR-2 and GSTR-3 had been operationalized 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.”

Bharti had argued that during the transition, the GST Network Portal was not geared to handling the load and lead to many inadvertent errors. After lengthy arguments, the delhi HC has decided to read down the december 2017 circular to the extent that it disallows rectifications of the GSTR-3B forms. Now delhi HC has allowed airtel to make corrections to the GSTR-3B forms for the period between July and september 2017. The HC also directed the government to verify the forms and process the refund within two weeks.

Brief Factual Background –

Petitioner is engaged in the business of providing telecommunication services in India, including Delhi. With the implementation of GST, it took registration in each and every State and Union Territory and now has 50 registrations under GST laws for making payment of CGST, SGST and IGST. Since the compliance regime under the GST laws is significantly different and the statutory provisions provide for a complete electronic model of compliances, Petitioner remoulded its system from the centralized registration under the erstwhile service tax regime, to multiple registrations under GST in order to bring it in conformity with the new laws. This included introduction of the technical changes for enabling filing of the statutory Forms GSTR-1, 2 and 3. However, while putting the new law into practice, Government could not operationalise Forms GSTR-2 and 3 and, as a result a summary scheme of filing Form GSTR- 3B was introduced.

Contention of the Petitioner (An Overview) –

(1.) In this transition phase, several issues cropped up which had a significant impact on tax paid, the output liability, and the ITC of the Petitioner and led to occurrence of several inadvertent errors. To illustrate a few-

(A) Invoices were accidently missed while filing Form GSTR-3B; credit notes pertaining to the invoices issued under the erstwhile regime were overlooked and, as a result, the output tax liability was over-reported;

(B) Certain transactions like stock transfer from one place of business to another under the same GST Registration was reported as supply

(2.) During the period from July, 2017 to September, 2017, the Petitioner in its monthly GSTR- 3B recorded the ITC based on its estimate. As a result, when the Petitioner had to discharge the GST liability for the relevant period, the details of ITC available were not known and the Petitioner was compelled to discharge its tax liability in cash, although, actually ITC was available with it but was not reflected in the system on account of lack of data. The exact ITC available for the relevant period was discovered only later in the month October 2018, when the Government operationalized Form GSTR-2A for the past periods. Thereupon, precise details were computed and Petitioner realized that for the relevant period ITC had been under reported.

(3.) Excess payment of taxes, by way of cash, to the tune of approximately Rs. 923 crores has been made due to under reporting of ITC. This was occasioned to a great degree due to non-operationalization of Forms GSTR-2A, GSTR-2 and GSTR-3 and the system related checks which could have the petitioner about the mistake.

(4.) Moreover, since there were no checks on the Form GSTR-3B which was manually filled up, the excess payment of tax went unnoticed.
So the Petitioner now desires to correct its returns, but is being prevented from doing so, as there is no enabling statutory procedure implemented by the Government.

Existing Framework related to Filing and Rectification of Returns –

The below mentioned Circulars and Provisons are given reference in the case –

Circular 7/7/2017 (System based Reconciliation) –

(1.) On 01.09.2017, by the Circular No. 7/7/2017-GST, the Government provided for system based reconciliation of information furnished in Form GSTR-1 and Form GSTR-2 with Form GSTR-3B.

(2.) Paragraph 6 of this circular specifically reiterated the fact that any differences in the details of outward supplies and ITC will be corrected in that particular month to which the details pertain.

(3.) Paragraph 9 of this circular further provided that where the eligible ITC recorded in the GSTR-3B is less than the ITC shown in GSTR-2, then the ITC will be correctly reflected in the GSTR-3 of that very month.

(4.) Thus, the Circular provided for reconciliation between the information furnished in the Form GSTR-3B with that reflected in Form GSTR-1 and Form GSTR-2. It also provided that if the details of eligible ITC have been reported incorrectly, the same maybe reported correctly in the Form GSTR-2 for the concerned tax period.

Circular 26/26/2017 on 29.12.2017 (Rectification of return in subsequent months) –

(1.) Circular 7/7/2017 was kept in abeyance due to continuing extension of time lines to file Form GSTR-1, 2 and 3 and non- availability of facility to file Form GSTR-2.

(2.) Para 3.2 of the circular states that since Form GSTR-2 and 3 could not be operationalized, the Circular dated 07.07.2017 is kept in abeyance till such time these two returns are operationalized.

(3.) Para 4 of the circular states that Form GSTR-3B can be corrected only in the month in which the errors were noticed. It may be noted that while making adjustment in the output tax liability or input tax credit, there can be no negative entries in the FORM GSTR-3B. The amount remaining for adjustment, if any, may be adjusted in the return(s) in FORM GSTR3B of subsequent month(s) and, in cases where such adjustment is not feasible, refund may be claimed.

Rule 61(5) (Filing of GSTR-3B) –

Where the time limit for furnishing of details in FORM GSTR-1 under section 37 and in FORM GSTR-2 under section 38 has been extended Commissioner may by notification order filing of returns through FORM GSTR-3B electronically through the common portal, either directly or through a Facilitation Centre notified by the Commissioner.

Sec 16(4) of CGST Act 2017 –

The last date for availing ITC for invoices or debit notes issued during the period July, 2017 to March, 2018 was:

1. Due date of furnishing of the return under section 39 (i.e. GSTR 3) for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains [such due date is yet not notified]; or
2. furnishing of the relevant annual return,
Whichever is earlier.

Thus last date for availing ITC as such was date of filing annual return by the taxpayer for the year 2017-18.
However it was held that GSTR 3B is not return as specified under Sec 39, so the above provisions will not come into operation till Form GSTR 3 as specified under Sec 39 was into operation.( Hon’ble Gujarat High Court in the case of AAP & Co. Chartered Accountants v/s Union of India [R/Special Civil Application No. 18962 of 2018 dated June 24, 2019])

Later pursuant to the discussions in the 37th Council Meeting, Notification No. 49/2019 – Central Tax dated 9th October, 2019 was issued which amended Rule 61(5) of the CGST Rules providing that GSTR 3B shall be a return u/s 39 of CGST Act, 2017 and such rule is amended retrospectively with effect from 1st July, 2017.

Petiotioner’s Grivience –

In the above background, Petitioner’s grievance is that there is no rationale for not allowing rectification in the month for which the statutory return has been filed. This is also totally contrary to the statutory scheme of the CGST Act – which provides that the data filled by a registered person will be validated in that month itself, and thereafter any unmatched details be rectified in the month in which it is noticed.

Accordingly, Petitioner impugns Rule 61 (5) From GSTR-3B and Circular No. 26/26/2017-GST dated 29.12.2017 as ultra vires the provisions of CGST Act to the extent, they do not provide for the modification of the information to be filled in the return of the tax period to which such information relates. The aforesaid provisions are also impugned on the ground that they are arbitrary, in violation of Articles 14-(Equality before law), 19(1)(g)-(Right to Practise any profession or Business), 265-(No tax shall be collected except by the authority of law) and 300A-(Right to Property) of the Constitution of India.

Submission of Learned Counsel –

Mr. Tarun Gulati, learned Sr. Counsel for the Petitioner argued that impugned circular is ultra vires the CGST Act and the Rules. He submits that –

(1.) Form GSTR-3B, prescribed under Rule 61 (5) is only a summary return that has been introduced by the Government in absence of Form GSTSR-2 and 3 being made operational. This Form is filled in manually and, therefore, has no inbuilt checks and balances that could ensure that the data uploaded by the Petitioner was accurate, verified and validated. The summary scheme introduced by Rule 61 (5) being in complete variance with the machinery originally contemplated under the GST Scheme, stifled the rights of the Petitioner by not permitting the validation of the data prior to the same being uploaded.

(2.) In absence of such validation, the chances of incorrect data being uploaded cannot be eliminated.

Mr. Gulati, placed reliance upon the judgment of the Gujarat High Court in the case of APP & Company Chartered Accountants Vs Union of India, 2019-TIOL-1422-HC-AHM-GST and submitted that the Court has observed that Fornm GSTR-3B was not a return required to be filed under Section 39 of CGST Act and was only a temporary facility and as such delay in claiming credit cannot delay the period for which the same is claimed i.e. the last date for filing the Form GSTR-3B under Sec 16(4).

It was further submitted that this Court has also in plethora of cases including Lease Plan India Pvt. Ltd. v. Govt. of NCT & Ors. [order dated 13.09.2019 – W.P. (C) 3309/2019] and Blue Bird Pure Pvt. Ltd v. Union of India & Ors., [order dated 22.07.2019 – W.P.(C) 3798/2019] , observed that GST is still in a “trial and error” phase and has permitted the assesses to rectify/revise the returns. Lastly, it was argued that the revision of Form GSTR-3B is revenue neutral since the Respondents have already realised the tax leviable under the law.

Submission from Mr Harpeet Singh learned Sr Standing counsel on behalf of Union of India –

(1.) Circular in the present petition does provide for the rectification of mistakes pertaining to earlier tax period in any subsequent tax period. He submitted that such changes have to be incorporated in the return for the tax period in which the error is noted.

(2.) The assessee cannot, however, reflect the change in Form GSTR-3B of the original tax period. The rationale behind such a restriction was sought to be explained by referring to sub-section (9) of Section 39 of the CGST Act, 2017.

Section 39(9) of the CGST Act 2017 (Any error or omission can be revised along with payment of interest) –

(1.) If any registered person after furnishing a return, 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 .

(2.) GST, being an indirect tax is levied along the entire supply chain. The tax paid on outward supplies entitles the recipient of such supplies to avail ITC for the same. Thus, if changes made to particulars furnished by the supplier are allowed to be reflected in the relevant previous tax period (Form GSTR- 3B for which return has already been filed), it would require modification of the particulars furnished in Form GSTR-3B (of such earlier tax period) by the recipient.

(3.) For example- If the supplier reduces tax liability for an earlier tax period (for which Form GSTR-3B has already been filed), this would require modification of the recipient’s Form GSTR-3B (which has already been filed) by way of commensurate reduction in ITC availed by him. This would enhance the compliance burden for the recipient.

(4.) Another complexity would arise if such recipient is an exporter and claims refund of unutilized ITC under section 54(3) of CGST Act, 2017 read with rule 89 (4) of CGST Rules, 2017. In cases where refund has already been sanctioned and disbursed, the reduction of available ITC by recipient would make it a fit case for erroneous refund, thereby inviting demand under section 73 of the CGST Act, 2017.

Analysis –

The grievance of the Petitioner pertains to the rectification of Form GSTR- 3B for the period from July to September, 2017. This is the tax period/month in which the error has crept in. Though, the question before us is a short one, however, since the same concerns the scheme of the CGST Act, we would have to delve into the concepts of filing of returns and the statutory provisions governing the same. The Scheme of filing of returns as envisaged by the CGST Act is explained herein below –

(1.) Section 37(1) of the CGST Act provides that a registered person is required to file a return (Form GSTR- 1) containing details of his outward supply for the tax period i.e. a month. These details of outward supplies of a registered person are communicated to the recipients in an auto-populated return (Form GSTR-2A) under Section 37(1) read with Section 38(1) of the CGST Act.

(2.) Section 38(1) of the CGST Act provides that a registered person shall verify, validate, modify or delete such details of inward supplies communicated under Section 37(1) of the CGST Act in the Form GSTR-2A. Thereafter, under Section 38(2) of the CGST Act the recipient files a return (Form GSTR-2) containing details of his inward supplies based on Form GSTR 2A. These details are then communicated to the suppliers under Section 38(3) of the CGST Act and suppliers can accept or reject the details under section 37(2) and Form GSTR-1, shall stand amended accordingly. It is important to note that the details of inward supplies provided in Form GSTR-2 are auto-populated in the ITC ledger of the recipient of such supplies on submissions of this form.

(3.) Section 38(5) of the CGST Act and 39(9) of the CGST Act provide that details that have remained unmatched shall be rectified in the return to be furnished for the month during which such omission or incorrect particulars are noticed.

(4.) Section 39 of the CGST Act provides that every registered person shall furnish a return (From GSTR-3) of inward and outward supplies, ITC, tax payable, tax paid and such other particulars as may be prescribed.

(5.) CGST Act contemplated a self-policing system under which the authenticity of the information submitted in the returns by registered person is not only auto-populated but is verified by the supplier and confirmed by the recipient in the same month.

(6.) The statutory provisions, therefore, provided not just for a procedure but a right and a facility to a registered person by which it can be ensured that the ITC availed and returns can be corrected in the very month to which they relate, and the registered person is not visited with any adverse consequences for uploading incorrect data.

(7.) While the GST regime envisaged the filing process and recording of ITC and payment of taxes as above, admittedly, due to system issues and under preparedness with regard to the extent of data to be processed, Form GSTR-2, and 3 were not made operational; and have been now completely done away with. Form GSTR-2A was made operational only in September 2018 by the Government. This Form is also valid in respect of the past periods commencing July 2017.

(8.) Since Forms GSTR-2 and 3 could not be operationalized by the Government, the Government introduced Rule 61(5) (which was amended vide Notification No. 17/2017-Central Tax, dated 27.07.2017) and the Rule 61(6) in the CGST Rules, and provided for filing of monthly return in Form GSTR-3B which is only a summary return.

(9.) Mr. Singh appearing for the Revenue does not controvert the submission of Mr. Gulati that Form GSTR- 3B is filled in manually by each registered person and has no inbuilt checks and balances by which it can be ensured that the data uploaded by each registered person is accurate, verified and validated.

(10.) In these circumstances we find merit in the submission of Mr. Gulati that if the statutorily prescribed form i.e. GSTR-2 & 3 had been operationalized by the Government – as was envisaged under the scheme of the Act, the Petitioner with reasonable certainty would have known the correct ITC available to it in the relevant period, and could have discharged its liability through ITC, instead of cash.

(11.) In this situation, since Petitioner’s ITC claim was based on estimation and the exact amount for the relevant period was not known, Petitioner discharged the GST liability for the relevant period in cash, although, in reality, ITC was available with it (though it was not reflected in the system on account of lack of data)

(12.) Now that the correct figures are known to the Petitioner, and limited rectification of returns is permissible, why is Petitioner’s grievance not redressed?

The answer lies in the refund provisions that we shall now allude to briefly

(1.) Section 54 (1) of the CGST Act provides for the refund of the amount of excess paid tax. The said provision read with Circular dated 29.12.2017, deals with the refund of excess tax paid. Under the proviso to section 54 (1) read with Section 49(6), refund of excess input tax credit is allowable only in two situations – where there is zero (0) rated tax, or inverted duty structure. Further, refund of cash is allowed in case of excess balance in electronic cash ledger in accordance with Section 46 (6) of CGST Act. Refund can also be claimed if tax is paid on supply which is not provided, either wholly or partially, and for which invoice has not been issued.

(2.) Furthermore, refund can be given under Section 77 of the Act which deals with tax wrongfully collected and paid to Central Government or State Government. Therefore, the above provisions would not entirely remedy the situation for the Petitioner

(3.) While the Respondents may be correct in stating that the case of the Petitioner may not qualify as “payment of excess tax”, but one cannot ignore the circumstances narrated above. In the first instance, the Petitioner has made payment of taxes in cash, only because the extent of input tax credit could not be computed.

(4.) In terms of para 4 of Circular No. 26/26/2017-GST, adjustment of tax liability of input tax credit is permissible in subsequent months. For the months of September/October, 2018, the output liability for the said months was adjusted by following the procedure as provided in the said circular.

(5.) However, Mr. Gulati has explained, the output tax liability has substantially reduced on account of low tariff in the telecom sector. As a result, the input tax credit which has accumulated on account of erroneous reporting, cannot be fully utilized in the prevailing tariff structure.

(6.) Moreover, even if there is a possibility to adjust the accumulated ITC in future, that cannot be a ground to deprive the Petitioner the option to fully utilize the input tax credit which it is statutorily entitled to do so.

(7.) The Respondents have failed to fully enforce the scheme of the Act, and cannot take benefit of its own wrong of suspension of the Statutory Forms and deprive the rectification/amendment of the returns to reflect ITC pertaining to a tax period to which the return relates to. Petitioner has a substantive right to rectify/adjust the ITC for the period to which it relates. The rectification/ adjustment mechanism for the months subsequent to when the errors are noticed is contrary to the scheme of the Act. The Respondents cannot defeat this statutory right of the Petitioner by putting in a fetter by way of the impugned circular.

(8.) We would also like to add that the Respondents have also not been able to expressly indicate the rationale for not allowing the rectification in the same month to which the Form GSTR-3B relates. The additional affidavit filed by the Respondents as per the directions of this Court, also skirts this question and has only attempted to give some explanation which is not convincing and lacks objectivity and rationality.

(9.) The refund of excess cash balance in terms of Section 49 (6) read with Section 54 of the CGST Act does not effectively redress Petitioner’s grievance. Therefore, the only remedy that can enable the Petitioner to enjoy the benefit of the seamless utilization of the input tax credit is by way of rectification of its annual return i.e. GSTR-3B.

(10.) Each case would have to turn on its own facts. As and when a situation is brought to our notice, we would have to test the legality of the provision at that stage. Merely if there is any fanciful or absurd outcome in a given situation, as illustrated by Mr. Harpreet Singh, it does not mean that the Petitioner should not be given the benefit of rectification if the same is genuine. The correction mechanism is critical to sustaining successful implementation of GST.

(11.) Thus, in light of the above discussion, the rectification of the return for that very month to which it relates is imperative and, accordingly, we read down para 4 of the impugned Circular No. 26/26/2017-GST dated 29.12.2017 to the extent that it restricts the rectification of Form GSTR-3B in respect of the period in which the error has occurred.

(12.) Accordingly, we allow the present petition and permit the Petitioner to rectify Form GSTR-3B for the period to which the error relates, i.e. the relevant period from July, 2017 to September, 2017. We also direct the Respondents that on filing of the rectified Form GSTR-3B, they shall, within a period of two weeks, verify the claim made therein and give effect to the same once verified.

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First Time in the History of GST : Rectification of GSTR-3B Allowed

FIRST TIME IN THE HISTORY OF GST : RECTIFICATION OF GSTR-3B ALLOWED

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