2025 (4) TMI 550 - HC - GST

Availment of excess input tax credit - Challenge to order of determination under Section 73(9) of the Central Goods and Services Tax Act 2017 and State Goods and Services Tax Act 2017 - challenge to order dismissing an application for rectification - HELD THAT - There is no dispute that petitioner had through DRC-03 intimated the payment of a huge amount of Rs. 3, 50, 94, 614/- by utilisation from cash and credit. However if the said intimation did not relate to the period 2019-20 the proper officer ought to have rejected it without accepting the said payment. Since there is no case for the proper officer that petitioner had any liability in existence for the year 2019-20 the said payment could only have been for the period 2018-19 as stated by the petitioner - There is nothing to indicate that such an acknowledgment was given. In fact in the application for rectification it has been specifically claimed that DRC-03 submitted by the petitioner had not been rejected. If the application was rejected pointing out the mistake in the financial year certainly the petitioner could have re-submitted the intimation with the corrected period within the time available. On verifying the records the proper officer could have even identified whether there existed any apparent error. The term record ought not to be interpreted in a restrictive manner to confine it to just the order sought to be rectified. The said term takes within its sweep other proceedings and documents already available in respect of the case under consideration - When mistakes are found to be bonafide and the taxpayer has taken immediate steps to rectify such errors they should not be penalised or imposed with an exorbitant amount which is otherwise not liable to be paid. Such imposition will not have the backing of Article 265 of the Constitution of India. On a perusal of the impugned order dismissing the application for rectification it is noticed that the proper officer has merely proceeded to dismiss the application without considering the nature of error that was pointed out. If the records do indicate that there was a bonafide mistake while determining the tax liability which was evident from the records available in the portal certainly it was open for the proper officer to rectify such an order rather than imposing such a huge liability. In view of the above this Court is of the view that the impugned order dismissing the rectification application is liable to be set aside and a re-consideration ought to be directed. Conclusion - The proper officer has merely proceeded to dismiss the application without considering the nature of error that was pointed out. The impugned order dismissing the rectification application is liable to be set aside and a re-consideration ought to be directed. Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily addresses two core legal issues:

• Whether the petitioner's rectification application under Section 161 of the CGST/SGST Act was wrongly dismissed, given the alleged bonafide error in the DRC-03 intimation regarding the financial year.
• Whether the order of determination under Section 73(9) of the CGST Act, imposing a liability inclusive of tax, interest, and penalty, was justified despite the petitioner's claim of having rectified the error voluntarily.

2. ISSUE-WISE DETAILED ANALYSIS

First Issue: Dismissal of the Rectification Application

• Relevant Legal Framework and Precedents: The rectification application was filed under Section 161 of the CGST/SGST Act. The Court referenced Rule 142(2) of the CGST Rules, 2017, which outlines the procedure for intimating payments through DRC-03, and the precedents set by the Gauhati High Court and Bombay High Court regarding the interpretation of "record" in rectification contexts.
• Court's Interpretation and Reasoning: The Court emphasized that the term "record" should not be interpreted restrictively and must include all proceedings and documents relevant to the case. The Court found that the petitioner's mistake in indicating the wrong financial year in DRC-03 was apparent from the records and could have been corrected if the proper officer had rejected the intimation promptly.
• Key Evidence and Findings: The petitioner had submitted DRC-03 indicating payment for the wrong financial year due to a typographical error. The Court noted that there was no pending liability for the year 2019-20, supporting the petitioner's claim that the payment was meant for 2018-19.
• Application of Law to Facts: The Court applied the principles of rectification, acknowledging that the petitioner had taken immediate steps to rectify the error, and found that the proper officer should have facilitated this correction rather than dismissing the application outright.
• Treatment of Competing Arguments: The Court dismissed the proper officer's rationale for rejecting the rectification application, emphasizing the need for a more comprehensive consideration of the apparent error and the petitioner's prompt corrective actions.
• Conclusions: The Court concluded that the rectification application was wrongly dismissed and directed a reconsideration of the application, emphasizing the need for an opportunity of hearing for the petitioner.

Second Issue: Justification of the Order under Section 73(9) of the CGST Act

• Relevant Legal Framework and Precedents: Section 73 of the CGST Act deals with the determination of tax not paid or short paid. The Court referred to Article 265 of the Constitution of India, which mandates that taxes should not be levied or collected without the authority of law.
• Court's Interpretation and Reasoning: The Court reasoned that imposing a liability without considering the petitioner's voluntary rectification efforts was unjustified. The Court highlighted that the statute allows taxpayers to correct bonafide errors before the issuance of a notice under Section 73.
• Key Evidence and Findings: The petitioner had reversed the wrongly availed ITC and made the corresponding payment, which was not acknowledged due to the error in the financial year stated in DRC-03.
• Application of Law to Facts: The Court applied the principles of tax law, emphasizing that the petitioner should not be penalized for a bonafide mistake, especially when corrective actions were taken promptly.
• Treatment of Competing Arguments: The Court found the authority's position untenable, as it failed to consider the petitioner's prompt rectification and the absence of any liability for the year 2019-20.
• Conclusions: The Court deemed the order imposing the liability excessive and unsupported by law, given the petitioner's corrective actions and the apparent nature of the error.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: The Court stated, "When mistakes are found to be bonafide, and the taxpayer has taken immediate steps to rectify such errors, they should not be penalised or imposed with an exorbitant amount, which is otherwise not liable to be paid."
• Core Principles Established: The judgment reinforced the principle that rectification should be allowed for bonafide errors apparent from the record and that taxpayers should not face undue penalties for such errors if promptly corrected.
• Final Determinations on Each Issue: The Court set aside the order dismissing the rectification application and directed a reconsideration, emphasizing the need for a hearing. The writ petition was allowed, and the order of determination under Section 73(9) was implicitly questioned, pending the outcome of the rectification reconsideration.