2020 (5) TMI 169 - HC - GST

Restriction on Rectification of GSTR-3B return - Refund of excess tax paid - Constitutional validity of Rule 61 (5) of the GST Rules, Form GSTR- 3B and Circular No. 26/26/2017-GST dated 29.12.2017 - vires of CGST Act and contrary to Articles 14, 19 and 265 of the Constitution of India - challenge is principally for the reason that Petitioner is being prevented from correcting its monthly GST returns, and consequently seeking refund of the excess taxes paid. Rectification of Form GSTR 3B - period from July to September, 2017 - HELD THAT - The statutory scheme, as envisaged under the Act provided 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 (Inward Supplies) - The statutory provisions 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. Rectification scheme under the Act - HELD THAT - The statute provides for a 2-stage rectification procedure by which the errors or omissions can be rectified by a registered person - 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. 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. Mr. Singh appearing for the Revenue does not controvert the submission of Mr. Gulati that Form GSTR3B 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. Therefore, the design and scheme of the Act as envisioned has not been entirely put into operation as yet - In these circumstances, there are 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. 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. These provisions are the stumbling block for the petitioner to remedy the situation. ITC is taken on the basis of the invoices issued to a registered person providing input/output services. This ITC is credited to the electronic credit ledger Section 2 (46) of the CGST Act under section 49(2) of the CGST Act. 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. Since the Respondents could not operationalize the statutory forms envisaged under the Act, resulting in depriving the Petitioner to accurately reconcile its input tax credit, the Respondents cannot today deprive the Petitioner of the benefits that would have accrued in favour of the Petitioner, if , such forms would have been enforced. The Petitioner, therefore, cannot be denied the benefit due to the fault of the Respondents. 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 - the Petitioner is permitted to rectify Form GSTR-3B for the period to which the error relates, i.e. the relevant period from July, 2017 to September, 2017 - petition allowed.

Summary

Issues Involved:
1. Ultra vires Challenge: The validity of Rule 61(5) of the GST Rules, Form GSTR-3B, and Circular No. 26/26/2017-GST under the CGST Act and the Constitution.
2. Rectification of Returns: The petitioner's right to rectify GST returns for the period of July to September 2017.
3. Refund of Excess Taxes: Claim for refund of excess taxes paid due to errors in initial GST returns.
4. Implementation of Statutory Forms: The failure of the government to operationalize Forms GSTR-2 and GSTR-3 as envisaged under the CGST Act.
5. Compliance Burden: The impact of manual filing and lack of system checks on compliance and ITC claims.

Detailed Analysis:

1. Ultra vires Challenge:
The petitioner challenged Rule 61(5) of the GST Rules, Form GSTR-3B, and Circular No. 26/26/2017-GST as ultra vires the CGST Act and contrary to Articles 14, 19, and 265 of the Constitution. The petitioner argued that these provisions prevented the correction of monthly GST returns, thereby hindering the refund of excess taxes paid. The court examined the statutory scheme of GST filings and the circumstances leading to the petitioner's situation, noting that the government's inability to operationalize Forms GSTR-2 and GSTR-3 led to the introduction of Form GSTR-3B, which lacked inbuilt checks and balances.

2. Rectification of Returns:
The petitioner sought to rectify errors in the GST returns filed for July to September 2017. The court noted that the statutory scheme under the CGST Act provided a facility for validation of monthly data through an IT system, which was not operationalized. The court found that the petitioner had a substantive right to rectify ITC for the period to which it relates and that the restriction imposed by Circular No. 26/26/2017-GST was arbitrary and contrary to the provisions of the Act. The court allowed the petitioner to rectify Form GSTR-3B for the relevant period and directed the respondents to verify and give effect to the rectified returns.

3. Refund of Excess Taxes:
The petitioner claimed a refund of approximately ?923 crores paid in excess due to errors in initial GST returns. The court noted that the petitioner was compelled to discharge its tax liability in cash due to the non-operationalization of Forms GSTR-2 and GSTR-3, which prevented accurate ITC reporting. The court found that the refund provisions under Section 54 of the CGST Act did not entirely remedy the petitioner's situation and that the petitioner could not be deprived of the benefit of seamless ITC utilization due to the government's failure to operationalize the statutory forms.

4. Implementation of Statutory Forms:
The court observed that the government's failure to operationalize Forms GSTR-2 and GSTR-3, as envisaged under the CGST Act, led to the introduction of Form GSTR-3B, which was a truncated version without inbuilt checks and balances. The court found merit in the petitioner's argument that if the statutory forms had been operationalized, the petitioner would have known the correct ITC available and could have discharged its liability through ITC instead of cash.

5. Compliance Burden:
The court acknowledged that the manual filing of Form GSTR-3B, introduced due to the non-operationalization of Forms GSTR-2 and GSTR-3, resulted in errors and compliance burdens. The court noted that the statutory scheme provided for a self-policing system with verification and validation of data, which was not implemented due to the lack of technical infrastructure. The court found that the restriction on rectification imposed by Circular No. 26/26/2017-GST was not in consonance with the provisions of the CGST Act and declared it arbitrary and contrary to the Act.

Conclusion:
The court allowed the petition, permitting the petitioner to rectify Form GSTR-3B for the relevant period from July to September 2017. The respondents were directed to verify the rectified returns and give effect to them within two weeks. The court emphasized that the government could not deprive the petitioner of the benefits due to its failure to operationalize the statutory forms and that the petitioner had a substantive right to rectify ITC for the period to which it relates.