RECTIFICATION OF RETURN GSTR – 3B

[Mr. M. GOVINDARAJAN]

It is mandatory to file the statutory Forms GSTR-1, GSTR - 2 and GSTR – 3 besides making GST payment.    Since the GSTN portal could not operationalize Forms GSTR-2 and 3 and, as a result a summary scheme of filing Form GSTR- 3B was introduced.  The due date of filing returns was also extended.  Rule 61(5) provides that Where the time limit for furnishing of details in Form GSTR-1 under section 37 or in Form GSTR - 2 under section 38 has been extended, the return specified in section 39(1) shall, in such manner and subject to such conditions as the Commissioner may, by notification, specify, be furnished in Form GSTR-3B electronically through the common portal.  The proviso to this rule provides that where a return in Form GSTR-3B is required to be furnished by a person then such person shall not be required to furnish the return in Form GSTR-3.

Form GSTR -3B was introduced only as a temporary measure in the hope that the net work will be improved in filing the returns smoothly.  But it has been allowed to be continued to be filed till date.  The due date for filing of GSTR – 3 for each and every month was extended from time to time.

It could not be told that all the registered persons filed the returns in correct manner.   Mistakes may be crept in while filing the returns. Various representations have been received wherein registered persons have requested for clarification on the procedure for rectification of errors made while filing their Form GSTR-3B. In this regard, Circular No. 7/7/2017-GST dated 01.09.2017 was issued.  This circular clarifies that  errors committed while filing Form GSTR – 3B may be rectified while filing Form GSTR-1 and Form GSTR-2 of the same month. Further, in the said circular, it was clarified that the system will automatically reconcile the data submitted in Form GSTR-3B with Form GSTR-1 and Form GSTR-2, and the variations if any will either be offset against output tax liability or added to the output tax liability of the subsequent months of the registered person.

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 01.09.2017 can only be operationalized after the relevant notification is issued. The said circular is therefore kept in abeyance till such time.

In the circular No. 26/26/2017-GST, dated 29.12.2017, it is clarified that where the taxpayer has committed an error in submitting (before offsetting and filing) the information in Form GSTR-3B, a provision for editing the same has been provided. The facility to edit the information can be used only before offsetting the liability and editing will not be permitted after offsetting the liability. Hence, it has been instructed that every care should be taken to ensure the accuracy of the figures before proceeding to offset the liabilities.  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 there under. 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.

In ‘Bharti Airtel Limited v. Union of India’ – 2020 (5) TMI 169, Delhi High Court, the petitioner is engaged in the business of providing telecommunication services in India, including Delhi, by virtue of license granted by the Department of Telecommunication, Government of India.   The petitioner has 50 registrations under GST laws for making payment of CGST, SGST and IGST.  During the period from July, 2017 to September, 2017, the petitioner in its monthly GSTR- 3B recorded the ITC based on its estimate. When the petitioner had to discharge the GST liability for the relevant period, the details of ITC available were not known and the petitioner was compelled to discharge its tax liability in cash, although, actually ITC was available with it but was not reflected in the system on account of lack of data. The exact ITC available for the relevant period was discovered only later in the month October 2018, when the Government operationalized Form GSTR-2A for the past periods.   The petitioner has made a calculation in detail and found that there has been excess payment of taxes, by way of cash, to the tune of approximately
₹ 923 crores.   Since there were no checks on the Form GSTR-3B which was manually filled up by the Petitioner, the excess payment of tax went unnoticed.  The Petitioner now desires to correct its returns, but is being prevented from doing so, as there is no enabling statutory procedure implemented by the Government.

Therefore the petitioner filed the present writ petition before the High Court under Article 226 of the Constitution of India impugning inter alia, Rule 61 (5) of the GST Rules, Form GSTR- 3B and Circular No. 26/26/2017-GST dated 29.12.2017 as ultra vires the provisions of Central Goods and Services Tax Act, 2017 and contrary to Articles 14, 19 and 265 of the Constitution of India.

The petitioner submitted the following before the High Court-

• The impugned circular is ultra vires the CGST Act and the Rules.
• The Petitioner has a statutory right to fill all the necessary details, details of outward supplies, inward supplies, return of inward or outward supplies, ITC availed, tax paid, when the aforesaid provisions of the Act became enforceable
• The inability of the Respondents to run their IT system as per the structure provided under the CGST Act cannot prejudice the rights of a registered person.
• Since the petitioner has to be shifted from single centralized registration under service tax regime to multiple registrations for each State under GST, to collate crores of transactions both on the output side and input side. 
• This required enormous compilation of data and was a humongous task.
• In this transition phase, several issues cropped up which had a significant impact on tax paid, the output liability, and the ITC of the Petitioner and led to occurrence of several inadvertent errors. 
• The invoices were accidently missed while filing Form GSTR-3B; credit notes pertaining to the invoices issued under the erstwhile regime were overlooked and, therefore, the output tax liability was over-r  reported;.
• certain transactions like stock transfer from one place of business to another under the same GST Registration was reported as supply; 
• For some periods due to inadvertent error, NIL Form GSTR-3B was filed, though actually there was output tax liability. 
• There is no rationale for not allowing rectification in the month for which the statutory return has been filed.
• This is also totally contrary to the statutory scheme of the CGST Act - which provides that the data filled by a registered person will be validated in that month itself and thereafter any unmatched details are rectified in the month in which it is noticed. 

The Revenue submitted the following before the High Court-

• The impugned circular in the present petition 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 is noted.
• The petitioner cannot, however, reflect the change in Form GSTR-3B of the original tax period.
•  It is not that as if the Act does not provide for rectification at all.
• In respect of particulars furnished for an earlier tax period, made at a later date in Form GSTR-3B, rectification shall get reflected in the return in the earlier tax period. 
• The original return shall not get amended in light of the corrections made post-facto - The Circular No. 26/26/2017-GST dated 29.12.2017 clarifies the same, and is aligned with the provisions of the statute.

The High Court heard the submissions put forth by both the parties.  The High Court analyzed the concepts of filing of returns and the statutory provisions governing the same.   The High Court analyzed the provisions of section 37, 38 and 39.  On a plain reading of the above provisions, it clearly emerges 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 High Court, next, examined the rectification scheme under the Act.  The statute provides for a 2-stage rectification procedure by which the errors or omissions can be rectified by a registered person-

• The 1st 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.
• The 2nd 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.

The High Court observed that 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.  The Revenue did not dispute that the statutory scheme envisaging the filing of return GSTR-2 and 3 could not be put into operation and has been indefinitely deferred. 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.

The Revenue did not controvert the submission of the petitioner 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.   The High Court found merit in the submission of the petitioner 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. Since Form GSTR-2 & 2A were not operationalized - and because the systems of various suppliers were not fully geared up to deal with the change in the compliance mechanism, the petitioner perhaps did not have the exact details of the input tax credit available for the initial three months i.e. the relevant period. In this situation, since petitioner’s ITC claim was based on estimation and the exact amount for the relevant period was not known, petitioner discharged the GST liability for the relevant period in cash, although, in reality, ITC was available with it .

When 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 which 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 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 Revenue cannot defeat this statutory right of the petitioner by putting in a fetter by way of the impugned circular. Since the Revenue could not operationalize the statutory forms envisaged under the Act, resulting in depriving the petitioner to accurately reconcile its input tax credit, the Revenue  cannot today deprive the petitioner of the benefits that would have accrued in favor of the petitioner, if , such forms would have been enforced. The petitioner, therefore, cannot be denied the benefit due to the fault of the Revenue. 

The High Court held that the rectification of the return for that very month to which it relates is imperative and, accordingly, the High Court 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.  The High Court allowed the writ petition filed by the petitioner.