A Deep Dive into Repercussions of Technical Glitches in Working of GST Portal

[Kashish Gupta]

The decision in the case of BHARTI AIRTEL LIMITED VERSUS UNION OF INDIA AND ORS. [2020 (5) TMI 169 - DELHI HIGH COURT] is essentially a benchmark wherein Government has been made to pay the cost of industry haemorrhage caused due to inefficient working of GSTN portal. Today, ensuring compliances manually with the provisions of section 37 to 43 is almost a sisyphean task. 

1. Introduction

GST law which was fraught with uncertainty in parliament for clearance for almost eleven years, finally got assent of both houses of parliament, ratification by at least 50% State legislatures and assent from President of India on September 08, 2016. Thereafter, respective central law related enactments got assent of President of India on April 12, 2017 and July 01, 2017 was set as the date on which GST shall come into force. As expected, the government did its best to make GST a success and introduced industry friendly tax rates and at the same time made a headway by achieving tax collections at target rate of Rs. One lakh Crore per month. But it was not just economic success for the Country as a whole, this period of new tax regime led to a professional efflorescence that would brand industry as GST savvy and complied. One such area is reconciliation with GSTR 2A or say the “concept of matching” which is the soul of GST and major compliance area. To understand this concept, provisions of section 16(2)(c), 16(4), 37, 38, 39, 41 and 42 of CGST Act, 2017 are important. 

2. Scheme as per Parent Act

1. Filing of returns

Section 37(1) requires a registered person to furnish a statement of outward supplies in Form GSTR-1 on or before 10^th day of month succeeding the tax period but not between 11^th day to 15^th day ibid. In terms of rule 59(3) of CGST Rules, 2017, after the due date of filing Form GSTR-1, said details of supplies are auto-populated in Form GSTR-2A of respective recipients. 

Section 38(1) and 38(2) requires the recipients to verify, validate, modify or delete the details appearing in Form GSTR-2A during the 11th day to 15^th day of the month following the tax period. While doing so, he can also include details of inward supplies which are not declared by the supplier and hence not appearing in Form GSTR-2A. Thereafter, he is required to report final figures in Form GSTR-2. In terms of section 38(3) read with rule 59(4) ibid, the details of inward supplies added, corrected or deleted are to be made available to the supplier in Form GSTR-1A.

Section 37(2) requires that such supplier may either accept or reject the modifications made by the recipient and FORM GSTR-1 furnished earlier by the supplier shall stand amended to the extent of modifications accepted by him. He is required to do these activities from the 15th day of the month to 17^th day of the month following the tax period.

2. Matching of credit

Now, after filing of returns as mentioned above, the provisions related to matching of credit are attracted. As per section 41 of the CGST Act, credit availed on self-assessed basis in return is credited on a provisional basis in electronic credit ledger and is subject to conditions and restrictions as prescribed. Accordingly, rule 69 provides for matching under section 42 after the due date of furnishing return in Form GSTR-3B. 

The results of matching are communicated on or before the last date of the month in which matching has been carried out. As per rule 70, the final acceptance of claim of input tax credit is communicated to the recipient in Form GST MIS-1 and as per rule 71 and 72, if any credit is not matched which in turn leads to addition in output tax liability, the details are communicated through Form GST MIS-1 and Form GST MIS-2.

Similarly, the provisions has been made for matching of output tax liability in section 43 read with rules 73 to 76 of CGST Rules, 2017.

3. Rectification of return on the basis of results of matching

In terms of provisions discussed supra, a registered person is allowed to make rectification in Form GSTR-1 or Form-2, as the case may be. However, no such error or rectification is allowed after earlier of due date of filing of return for the tax period September following the end of financial year or relevant annual return. The relevant provisions reads as under:

37. Furnishing details of outward supplies

(3) Any registered person, who has furnished the details under sub-section (1) for any tax period and which have remained unmatched under section 42 or section 43, shall, upon discovery of any error or omission therein, rectify such error or omission in such manner as may be prescribed, and shall pay the tax and interest, if any, in case there is a short payment of tax on account of such error or omission, in the return to be furnished for such tax period:

Provided that no rectification of error or omission in respect of the details furnished under sub-section (1) shall be allowed after furnishing of the return under section 39 for the month of September following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier.

38. Furnishing details of inward supplies

(5) Any registered person, who has furnished the details under sub-section (2) for any tax period and which have remained unmatched under section 42 or section 43, shall, upon discovery of any error or omission therein, rectify such error or omission in the tax period during which such error or omission is noticed in such manner as may be prescribed, and shall pay the tax and interest, if any, in case there is a short payment of tax on account of such error or omission, in the return to be furnished for such tax period:

Provided that no rectification of error or omission in respect of the details furnished under sub-section (2) shall be allowed after furnishing of the return under section 39 for the month of September following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier.

39. Furnishing of Returns

(9) 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.

 

3. Scheme made operational

4. Non-operationalization of Form GSTR-2 and GSTR-3; filing of Form GSTR-3B and delay in matching concept

The original scheme of Act propounded by way of rule 61(5) that return in Form GSTR-3B can be filed in lieu of Form GSTR-3 whenever the time limit for filing statements in Form GSTR-1 and GSTR-2 is extended. This scheme clarified the intent of Government that Form GSTR-3B is not a return but a temporary reporting of details in particular circumstances though later on tempered with by omitting the words “in lieu of” vide NN 17/2017-CT dated 27.07.2017.

In the initial phase of GST roll out, the due dates for furnishing GSTR-1 for the month of July 2017 was extended till September 05, 2017 vide NN 18/2017-CT dated 08.08.2017. This date was further extended till September 10, 2017 vide NN 29/2017-CT dated 05.09.2017 and then to October 10, 2017 vide NN 30/2017-CT dated 11.09.2017 and then to December 31, 2017 vide NN 58/2017-CT dated 15.11.2017 and finally to January 10, 2018 vide NN 72/2017-CT dated 29.12.2017. From 15.11.2017, Government started mentioning at the end of each notification that due dates for furnishing details in Form GSTR-2 and GSTR-3 would be notified separately and it shall be considered as extended. Hence, the Forms GSTR-2 and GSTR-3 were not made operational, basically, due to the technical lapses of GSTN portal.

Accordingly, the concept of matching under section 42 and 43 stood delayed. [Refer first proviso to rule 69(1) of CGST Rules, 2017]

5. Clarification on rectification of returns from time to time

Till January 10, 2018, every taxpayer was filing Form GSTR-3B only and therefore, in order to clarify the workings of these Forms and the procedure related to rectification of errors, Government issued a clarification through Circular Number 07/07/2017 dated 01.09.2017 wherein it was provided as under:

6. In case the registered person intends to amend any details furnished in FORM GSTR- 3B, it may be done in the FORM GSTR-1 or FORM GSTR-2, as the case may be. For example, while preparing and furnishing the details in FORM GSTR-1, if the outward supplies have been under reported or excess reported in FORM GSTR-3B, the same maybe correctly reported in the FORM GSTR-1. Similarly, if the details of inward supplies or the eligible ITC have been reported less or more than what they should have been, the same maybe reported correctly in the FORM GSTR-2. This will get reflected in the revised output tax liability or eligible ITC, as the case may be, of the registered person. The details furnished in FORM GSTR-1 and FORM GSTR-2 will be auto-populated and reflected in the return in FORM GSTR-3 for that particular month.

7. After the registered person has furnished the statement of inward supplies in FORM GSTR-2 by the extended date, the common portal shall auto-draft Part-A of the return in FORM GSTR-3 for the said month based on the information furnished in FORM GSTR-1 and FORM GSTR-2. Based on the revised figures of output tax liability and eligible input tax credit, Table 12 of Part B of FORM GSTR-3 shall be made available. The common portal would populate the correct figures of tax payable in column (2) of Table 12 of FORM GSTR-3, based on the information furnished in FORM GSTR-1 and FORM GSTR-2. The tax paid through the electronic cash ledger and electronic credit ledger in the return in FORM GSTR-3B shall be displayed by the system in column (3) to (7) of the Table 12 of Part B of FORM GSTR-3………………………..

………………

9. Where the eligible ITC claimed by the taxpayer in FORM GSTR-3B is less that the ITC eligible as per the details furnished in FORM GSTR-2, the additional amount of ITC shall be credited to the electronic credit ledger of the registered person when he submits the return in FORM GSTR-3 (in accordance with clause (c) of sub-rule (6) of rule 61). However, simultaneously, if there is an increase in the output tax liability, the registered person can utilize this additional amount of ITC eligible as per the details furnished in FORM GSTR-2 along with the balance in the electronic cash ledger, if required, for the payment of the increased output tax liability and submit his return in FORM GSTR-3.

However, when in November 2017, Government realized that Form GSTR-2 and GSTR-3 are not going to be a reality, they started changing the entire scheme of law which begun with keeping the above circular in abeyance vide Circular Number 26/26/2017 dated 29.12.2017 which comes out with a new concept of rectification of errors. It provided as under:

“3.2 Since, the GST Council has decided that the time period of filing of FORM GSTR-2 and FORM GSTR -3 for the month of July 2017 to March 2018 would be worked out by a Committee of officers, the system based reconciliation prescribed under Circular No. 7/7/2017-GST dated 1st September 2017 can only be operationalized after the relevant notification is issued. The said circular is therefore kept in abeyance till such time.

3.3 The common errors while submitting FORM GSTR-3B and the steps needed to be taken to rectify the same are provided in the table annexed herewith. The registered person needs to decide at which stage of filing of FORM GSTR-3B he is currently at and also the error committed by him. The corresponding column in the table provides the steps to be followed by him to rectify such error.

………………………

6. It is further clarified that the information furnished by the registered person in the return in FORM GSTR-3B would be reconciled by the department’s system with the information furnished in FORM GSTR-1 and discrepancies, if any, shall be dealt with in accordance with the relevant provisions of the CGST Act, 2017 and rules made thereunder. Detailed instructions regarding reconciliation of information furnished in FORM GSTR-3B with that contained in FORM GSTR-2 and FORM GSTR-3 will be issued in due course of time.”

Thus, all this has led to a situation wherein taxpayers were left in chaos with no provision for rectification of returns as provided under the Parent Act which effectively acts as a derogation of their legitimate rights.

4. Benefit given by Hon’ble Delhi High Court in Bharti Airtel case

Recently, the Delhi high court on Tuesday, May 05 allowed Bharti Airtel Ltd. to claim a refund of ₹ 923 crore by rectifying its returns for the quarter ending September 2017. Let’s have a glimpse of the case held by Hon’ble Delhi HC. [BHARTI AIRTEL LIMITED VERSUS UNION OF INDIA AND ORS. 2020 (5) TMI 169 - DELHI HIGH COURT]

Facts of the case

• There was excess payment of taxes due to non-operationalization of certain GST return forms and system-related checks which could have forewarned them about the mistake. Since, there were no checks on the Form GSTR-3B, which was manually filled up by the company, the excess payment of tax went unnoticed. 

• They had excess input tax credits at its disposal but could not utilize it in adjusting against the final tax liability due to regulatory and technology-related uncertainties at the time of India’s transition to the new indirect tax regime in 2017. 

• The grievance of the petitioner is that during the impugned period, he recorded the ITC based on its estimate in his monthly GSTR- 3B. As a result, when he had to discharge the GST liability for the relevant period, the details of ITC available were not known and he was compelled to discharge its tax liability in cash, although ITC was actually available, but was not reflected in the system due to lack of data. The exact ITC available for the relevant period was discovered later in the month of October 2018, when the Government operationalised Form GSTR-2A for the past periods. Thereupon, precise details were computed, and he realized that for the relevant period, ITC had been under reported and there has been excess payment of taxes, by way of cash, to the tune of ₹ 923 crores.

• Now, he desires to correct his returns, but is prevented from doing so, as there is no enabling statutory procedure implemented by the Government.

Submissions of the Petitioner

• The circular no. 7/2017-GST dated September 01, 2017 provides for reconciliation between the information furnished in the Form GSTR-3B with that reflected in Form GSTR-1 and Form GSTR-2. 
• The grievance is that there is no rationale for not allowing rectification in the month for which the statutory return has been filed and Rule 61 (5) of CGST Rules, 2017 and circular no. 26/2017-GST 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. 
• Further, the delay in operationalizing of Form GSTR-2A, a process which was statutorily mandated, cannot defeat the rights of the taxpayer to take and use credit in the month in which it was due. 
• Here, reliance was placed upon the judgment of Hon’ble Gujarat High Court in the case of AAP AND CO., CHARTERED ACCOUNTS THROU AUTHORISED PARTNER Versus UNION OF INDIA & 3 other (s) - 2019 (7) TMI 401 - GUJARAT HIGH COURT, held that the Court had observed that Form GSTR-3B was not a return required to be filed under section 39 of CGST Act, 2017 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. 
• Moreover, reliance was also placed upon the decision of Andhra Pradesh High Court in the case of M/s. Panduranga Stone Crushers Versus The Union of India - 2019 (8) TMI 1351 - ANDHRA PRADESH HIGH COURT and Punjab & Haryana High Court in the case of Adfert Technologies Pvt. Ltd. Versus Union of India And Ors. - 2019 (11) TMI 282 - PUNJAB AND HARYANA HIGH COURT
• The High Court of Delhi has in plethora of judgements including LEASE PLAN INDIA PRIVATE LIMITED Versus GOVERNMENT OF NATIONAL CAPITAL TERRITORY OF DELHI & ORS. - 2019 (9) TMI 1044 - DELHI HIGH COURT. and M/s. Blue Bird Pure Pvt. Ltd. Versus Union Of India & Ors. - 2019 (7) TMI 1102 - DELHI HIGH COURT In which the Court has observed that GST is still in a “trial and error” phase and has permitted the taxpayer to rectify/revise the returns.

Submissions by the Respondent

• The impugned circular does provide for the rectification of mistakes pertaining to earlier tax period in any subsequent tax period. Such changes have to be incorporated in the return for the tax period in which the error has been noted. The taxpayer cannot, however, reflect the change in Form GSTR-3B of the original tax period. The rationale behind such a restriction can be explained by referring to sub-section (9) of section 39 of the CGST Act, 2017. Even though this provision has been amended vide CGST Amendment Act, 2018 and it is clarified through notification no. 2/2019-CT dated January 29, 2019, the section which specifies the amendment in section 39(9) of CGST Act 2017, of the CGST Amendment Act, 2018 shall not come into force.

Observations by High Court

• The Hon’ble High Court had analyzed the scheme of filing of returns under the CGST Act, 2017 and has clearly understood that the statutory scheme under the Act provides a facility for validation of monthly data through the IT System of the Government wherein the output of one dealer (Form GSTR-1), becomes the input of another dealer and gets auto-populated in Form GSTR-2. These details had to be electronically populated in Form GSTR-3 and tax had to be paid based on this return. The CGST Act and the CGST Rules as envisaged provided for verification, validation, modification and deletion of information for each period by interaction, over the IT System, between the supplier and the recipient, so as to reflect the correct details pertaining to the tax period in that particular tax period itself (i.e. a month).

• Further the Court examined the 2-stage rectification scheme by which the errors or omissions can be rectified by a registered person under the act:

1. The first stage of rectification can happen under section 37(1) read with Sections 38 (1), 38 (3) and 37 (2) of the CGST Act wherein a registered person could rectify the errors or omissions pertaining to a tax period in the return to be furnished for such tax period itself through a self-policing and auto-populated interaction on the system.
2. The second stage of rectification is provided under Section 38 (5) and 39 (9) of the CGST Act wherein, in respect of only unmatched details, which could not be corrected at the first stage, rectification could be done in the return to be furnished for the month during which such omission or incorrect particulars were noticed.

• 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. This makes it abundantly clear that neither the systems of the Government were ready, nor were the systems of the suppliers all across the country geared up to handle such an elaborate electronic filing and reconciliation system introduced for the first time.

• Since Form GSTR-2 and 3 could not be operationalised by the Government, Form GSTR-3B for filing of monthly return, which is only a summary return was introduced. 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.

• Indisputably, if the statutorily prescribed returns i.e. GSTR 2 and GSTR 3 had been operationalised by the Government, the taxpayer would have known the correct ITC amount available to it in the relevant period and could have discharged its liability through ITC. Consequently, the deficiency in reporting the eligible ITC in the months of July - September 2017 in the Form GSTR-3B has resulted in excess payment of cash by the taxpayer.

• Further, the Court analyzed the refund provisions under GST Act and various scenarios under which a registered taxpayer can claim refund of tax paid. The instant case of the taxpayer does not fall under any of the scenarios by which the taxpayer can claim refund, the only option available to the taxpayer as per circular no. 26/2017- GST, is to adjust the tax liability in subsequent months. As the output tax liability has substantially reduced on account of low tariff in the telecom sector in the subsequent months, the taxpayer could not adjust the tax liability and utilize the excess ITC, instead the accumulation of ITC has increased.

• Further, the Court observed that circular no. 26/2017- GST dated December 29, 2017 was issued providing that rectification of errors can be done, concurrently in that month in which the errors is known and not in the month to which the data relates is flawed and the restriction if any, that can be introduced by way of a circular, has to be in conformity with the scheme of the Act and the provisions contained therein. Thus, the constraint introduced in the above circular is arbitrary and contrary to the provisions of the Act.

• The Court observed that the Government had failed to fully enforce the scheme of the Act and cannot take benefit of its own wrongful 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. The taxpayer has a substantive right to rectify/adjust the ITC for the period to which it relates.

• Further, the Court also observed that the Government has 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 Government had also admitted that the facility of Form GSTR-2A was not available prior to 2018 and as such, for the months of July 2017 to September 2017, the scheme as envisaged under the CGST Act was not implemented and also clearly acknowledged that there could be errors in Form GSTR-2A which may need corrections by the parties and has, in fact, permitted the rectifications, clearly reinforcing the stand of the taxpayer. Therefore, the only remedy that can enable the taxpayer to enjoy the benefit of the seamless utilization of the ITC is by way of rectification of its return i.e. GSTR-3B.

• In the end, the Hon’ble High Court has held that:

“…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.”

• Accordingly, in light of the above discussion, the Hon’ble High Court held that the rectification of the return for that very month to which it relates is imperative and accordingly, the Court read down Para 4 of the impugned circular no. 26/2017- GST dated December 29, 2017 to the extent that it restricts the rectification of Form GSTR-3B in respect of the period in which the error has occurred and allowed the petition and permitted the taxpayer to rectify Form GSTR-3B for the period to which the error relates, i.e. the relevant period from July 2017 to September 2017 within a period of two weeks.
• In view of the fact that the final relief sought by the Petitioner has been granted and the petition is allowed, no separate order is required to be passed in the application seeking interim relief. Accordingly, the said application is disposed of as such.

Conclusion:

Pulling it all together, it can be rightly concluded that the correction mechanism is critical to sustain successful implementation of GST. The Government has not fully enforced the schemes of the Act and cannot take benefit of its own wrongdoing 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, by putting in a fetter by way of the impugned circular. The taxpayers do have a vested and 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 were noticed is contrary to the scheme of the Act. 

Taking a note of similar technical issues in other cases, the Hon’ble Delhi High Court in case of VISION DISTRIBUTION PVT. LTD. VERSUS COMMISSIONER, STATE GOODS & SERVICES TAX & ORS. [2019 (12) TMI 1048 - DELHI HIGH COURT] allowed the refund of liability paid in cash due to inefficient working of GSTN portal. Also, in view of the author, refund in respect of the liabilities paid in cash on account of delayed availability of Form GSTR-6, thereby, delayed distribution of credit by input service distributor and delayed availment of credit by the registered person shall also be allowed.

It is noted lately, vested interests fanning constitutional claims of fundamental rights, and vying with each other, are attempting to subject the constitutional machineries of the State to great stress and strain with certain quaint ideas and the judiciary is with the taxpayer in allowing the relief.

(Article assisted by: Ms. Sanskriti Naruka, a student of Institute of Chartered Accountants of India)