2023 (12) TMI 824 - HC - GST

Seeking GST registration to be effective from retrospective effect i.e. 1.7.2017 - Migration from erstwhile tax laws to GST - Bonafide error in making application - refusal to grant benefit of Input Tax Credit (ITC) to petitioner and on supplies made to buyers - non-filing of the monthly return on the Form GSTR-3B - HELD THAT - It is undoubtable, that in absence of any legal requirement on a ISD to file its monthly return on Form GSTR-3B , the ISD registration could never be cancelled for reason of not filing such returns. As to the present facts, it is undisputed, petitioner no.1 was neither having more than one business vertical nor he was in need to distribute any amount of ITC that may have arisen to him. Yet, Tax Invoice were issued and the amounts of tax realized by him against the old/ISD registration, without delay - The registration as a ISD being a registration granted to a facilitation office of a recipient of taxable goods or service, it could not be utilized for any taxable business transaction with a third party, by a registered person/supplier. The mistake with respect to grant of ISD registration, that forms the first error in the chain of errors noted above, may be described as mistake apparent on record. Under the erstwhile law where decisions to issue notice etc., were made only upon due application of mind, to the facts disclosed on paper upon due application of human intelligence, the procedure to offer correction was simple and direct. At present, under the Act, machine processes have been designed including auto-populated and auto-generated Forms, reports, etc., by the GSTN, ostensibly to eliminate avoidable human errors and to improve administrative efficiency. Under the present Act, by virtue of section 146, a digital common portal has been created by the GSTN to provide amongst others facilitation of registration; payment of tax; furnishing of returns; computation and settlement of integrated tax; issuance of electronic way bill etc. The petitioner no.1 entitled to the relief such that the second registration granted to him be treated to be effective from the date 1.7.2017, on a deemed basis. In absence of lack of bonafides and in face of the established machine error that it is noted, grant of that relief has become imperative for non-negotiable justice considerations. Unless that equitable relief is granted, the demand of substantive justice would stand defeated primarily to unintended human errors reflected in imperfect machine processes employed to implement procedural laws. The disclosure made in GSTR-1 of petitioner no.1 for the month of October 2017 would be modified by GSTN to reflect on the corresponding GSTR-2A, relevant to petitioner no.2 for the period July to September 2017 and all consequences to arise to the petitioners. To that extent, the order passed by the Authority for Advance Ruling may not stand in the way of the petitioners - Petition allowed.

Summary

Issues Involved:

1. Retrospective effect of new GST registration.
2. Denial of Input Tax Credit (ITC) by the Authority for Advance Ruling.
3. Procedural errors in GST registration and tax deposit.

Summary:

Retrospective Effect of New GST Registration:

The petitioner sought a direction for the new GST registration granted on 23.10.2017 for "Manpower Supply Services" to be treated with retrospective effect from 1.7.2017, the date of the original registration. The court noted that the petitioner was initially registered under the Finance Act, 1994, and auto-migrated under the GST Act by virtue of Section 139. The petitioner was obligated to seek fresh registration under Sections 22 and 25 of the Act, leading to the dispute. The court found that the petitioner had disclosed his business activity of "Manpower Recruitment Agency" while obtaining the original registration, and the revenue authorities acted on this information. The court concluded that the initial registration error was a mistake apparent on record, attributable to the GSTN portal's deficiencies.

Denial of Input Tax Credit (ITC):

The petitioner challenged the Authority for Advance Ruling's order dated 17.12.2019, which denied ITC benefits for transactions supported by revised Tax Invoices issued under the new registration. The court observed that the petitioner had disclosed his main business activity and deposited tax against the ISD registration. The court emphasized that the ISD registration could not be used for taxable business transactions, and the tax deposit against it was contrary to statutory law. The court directed that the second registration be treated as effective from 1.7.2017 to ensure substantive justice and allowed the petitioner to claim ITC benefits if the due tax on revised Tax Invoices was deposited along with the return for October 2017.

Procedural Errors in GST Registration and Tax Deposit:

The court highlighted several procedural errors, including the GSTN portal allowing ISD registration without pre-existing business registration, permitting tax deposit against ISD registration, and issuing a show-cause notice for non-filing of monthly returns on GSTR-3B by an ISD. The court noted that these errors were attributable to the GSTN portal and directed appropriate remedial measures. The court emphasized the need for human intervention to correct machine errors and ensure that procedural laws subserve substantive justice.

Conclusion:

The court allowed the petition, directing that the new GST registration be treated as effective from 1.7.2017 and permitting the petitioner to claim ITC benefits subject to verification of tax deposit compliance. The court emphasized the importance of correcting procedural errors to ensure justice and directed the Central Board of Indirect Taxes & Customs (CBIC) to issue necessary directions to remedy similar situations caused by machine errors.