The petitioner, Shree Ambica Auto Sales And Service and another party, purchased vehicles and received a benefit called input tax credit (ITC) based on official tax invoices from their supplier. Later on, the supplier provided credit notes to the petitioners as a way to give discounts after the sale, as part of a promotional sales program.
Related to it, the applicants issued debit notes of equivalent value to the vendor and considered and released the GST obligation on these debit notes by showing them in their GSTR-1 and GSTR-3B returns. Therefore, the applicants have reversed the ITC attributable to the discounts; however, via tax payment on debit notes rather than a reduction of ITC via credit note matching in the GST portal.
But because of the technical design of the GST portal, the debit notes issued via buyers were not factored into the auto-matching procedure, which resulted in a mismatch in Form GSTR-2A and triggering proceedings by the department.
At the time of inspection, the authorities allegedly forced the applicants to reverse the ITC of Rs 10,99,06,850 and to file Form DRC-03. After that a SCN on 06.10.2023 was issued proposing the reversal of the ITC of Rs 34,26,33,614 and simultaneously offering appropriation of output tax already paid by the applicants of ₹42,75,68,473, which exceeded the proposed reversal.
The Additional Commissioner, even after the same passed an order on 26.12.2023 denying appropriation and keeping that the applicants must claimed refund of tax filed on debit notes.
The dissatisfied applicants approached the HC asking for a refund/re-credit and permission to correct GST returns, claiming that the exercise was revenue-neutral and emerged from unintentional and bona fide errors in return filing.
Main Issue:-
Were the GST authorities justified in refusing the rectification or amendment of Forms GSTR-1 and GSTR-3B, and in confirming the demand or reversal of ITC? This was done despite the error being bona fide, revenue-neutral, and not causing any loss to the exchequer, solely based on the technical limitations of the GST portal and the expiration of statutory timelines.
Held That:–
The court held that there is a need for a purposive and pragmatic interpretation of Sections 37, 38, and 39 of the CGST/GGST Acts. The statutory provisions that allow for the rectification of errors cannot be disregarded simply because of procedural or technical limitations of the electronic GST system.
This is especially true when the error is genuine and unintentional, there are no allegations of fraud or undue benefit, and no revenue loss to the Government occurs.
Recommended: How GST Software Resolves GSTR-3B & 2A/2B ITC Mismatches
The Court referenced judgments from the Bombay High Court in the cases of Star Engineers (I) Pvt. Ltd. and Aberdare Technologies Pvt. Ltd., which emphasised that the technicalities of the GST portal should not take precedence over the principles of substantive justice. The exceptions outlined in Sections 37(3) and 39(9) should not be interpreted so strictly that they undermine the legislative intent to ensure accurate tax reporting.
In this case, the Court observed that the petitioners had paid output tax that exceeded the Input Tax Credit (ITC) they sought to reverse. Even if the department’s legal interpretation were accepted, the situation would still be revenue-neutral. The authorities could not dispute that allowing the rectification would not harm revenue.
Thereafter, the court asked the respondents to open the GST portal to allow the applicants to revise Forms GSTR-1 and GSTR-3B within the said period. The court granted consent to the applicant to submit manual rectification applications, which the authorities were instructed to process according to the law.
As a result, the SCN was deemed null and void. The court upheld the writ petitions and quashed the impugned order, concluding that the actions taken by the authorities were legally unsustainable.
| Applicant Name | Shree Ambica Auto Sales And Service & Anr. vs. Union Bank of India & Anr |
| Case Number | NO. 1277 of 2024 |
| For the Petitioner | MR Uchit N Sheth |
| For Respondent | MR CB Gupta |
| Gujarat High Court | Read Order |
