In a recent decision[1], the Bombay High Court permitted the petitioner to rectify their GSTR-1 despite even though statutory deadline for rectification of such return had expired. The High Court cited the relevant provisions – Sections 37, 38, and 39 of CGST Act, 2017 – and stated that they need to be interpreted purposively and the law cannot be interpreted to mean that there is no room for correcting inadvertent errors in returns.
Facts
The petitioner, Star Engineers (I) Pvt Ltd, designed, manufactured, and supplied wide range of electronic components for industrial purposes. The petitioner was a regular supplier of the components to Bajaj Auto Limited and during the Financial Year 2021-22 supplied various components to third party vendors on ‘Bill-to-Ship-to-Model’ on instructions of Bajaj Auto Limited. The aforesaid Model allows a supplier to ship the goods to one entity, while issue the bill in favor of another entity. In this case, the petitioner was supplying goods to third party vendors and invoices were issued in the name of Bajaj Auto Limited. However, while filing GSTR-1 for the period July 2021, November 2021, and January 2022, the petitioner inadvertently mentioned GSTIN of the third-party vendors instead of Bajaj Auto Limited.
The above error in filing GSTR-1 meant that the supplies made by the petitioner for the said period were not reflected in GSTR-2B of Bajaj Auto Limited but in the GSTR-2B of the third-party vendors. Accordingly, Bajaj Auto Limited was unable to claim ITC for the said supplies. To compensate itself for the same, Bajaj Auto Limited reduced the payment amount to the petitioner equivalent to the GST stating its inability to claim ITC to that extent.
In September 2023, the petitioner approached the Deputy Commissioner of Sales Tax requesting that it be allowed to rectify the error in GSTR-1 for the supplies made during the Financial Year 2021-22 as it was causing prejudice to the petitioner. However, the Deputy Commissioner rejected the request on the ground that while rectification of the error would not cause any loss the Government exchequer, it was past the due date prescribed under the statute. Against, the said decision the petitioner approached the Bombay High Court.
Purposive Interpretation of Sections 37, 38, and 39 of CGST Act, 2017
The Bombay High Court noted the relevant provisions of the CGST Act, 2017 which mandate the filing of returns and prescribe the outer time limit for rectification of errors that may creep into such returns at the time of filing.
Section 37(1) requires all registered persons to furnish electronically all details of their outward supplies and the said information will be communicated to the recipient of such supplies. This provision has translated into the registered person filing GSTR-1 stating their outward supplies and the recipient receiving an auto-drafted ITC statement based on the information disclosed in GSTR-1. Section 37(3) allows for rectification or omission in the returns, but the Proviso states that no rectification shall be allowed after 30 November following the end of financial year to which the returns pertain. Section 38 states that the details of outward supplies provided under Section 37 shall be communicated to the recipient. Section 39(1) also contains a similar obligation regarding both the input and output supplies and ITC paid or payable. While Section 39(9) allows rectification of errors and omissions. Proviso to Section 39(9) prescribes a similar outer time limit as Proviso to Section 37(3).
The Bombay High Court perusing the above provisions observed that they ‘need to be purposively interpreted.’ (para 12) What did purposive interpretation mean in this context? The High Court elaborated that Section 37(3) cannot be interpreted to mean that the assessee cannot be allowed to rectify errors in returns and reflect an accurate record. Not allowing rectification of errors would lead to preservation of inaccurate records consisting of errors, which the High Court observed would not be in consonance with the purpose of GST. The High Court stated that the proviso cannot be allowed defeat the intent of provision especially if rectification of the error would not lead to loss of revenue.
The Bombay High Court also reasoned that GST regime had inaugurated a regime where returns are completely online. It stated that there are a wide variety of traders in India and many may have limited resources and expertise as a result of which inadvertent errors may creep into the returns and the keeping the same in mind, assessees should be allowed to rectify errors in their returns and the provisions of law ‘should be alive’ to such considerations. (para 20)
Similar Judicial Precedents
The Bombay High Court in allowing the petitioner to their rectify GSTR-1 beyond the due date followed a slew of precedents – M/s Sun Dye Chem v Assistant Commissioner (ST) & Ors[2], Pentacle Plant Machineries Pvt Ltd v Office of GST Council & Ors[3], Shiva Jyoti Constructions v Chairperson, CBEC & Ors[4], Mahalaxmi Infra Contract Ltd v GST Council & Ors[5] – where various High Courts have awarded a similar relief to the assessees. The High Court did cite the precedents in support of its reasoning and conclusion. In these precedents none of the High Courts expressly invoked purposive interpretation, but instead the relief was provided based on facts and Court’s satisfaction that errors of assesses in their returns were bona fide. Further, the common thread in all the cases is that the High Courts were convinced that the rectification of the returns would not lead to loss to the Government exchequer. The latter issue weighed with the High Court in the impugned case as well.
Conclusion
The Bombay High Court’s decision in the impugned case invoked the bona error of the petitioner, the fact that no illegality involved, and that the rectification of GSTR-1 would cause no loss to the exchequer. It was not a simple case of purposive interpretation wherein the High Court went beyond the statutory provisions to allow the petitioner to rectify returns even after expiry of the statutory deadline. In the absence of even one of the three factors mentioned above, the High Court’s decision could have been different. Finally, it is important to underline here that reliefs such as in the impugned case are ordinarily and perhaps can only be granted by Courts. Officers allowing rectification of returns after expiry of statutory deadlines is a possibility that is hard to foresee.
[1] Star Engineers (I) Pvt Ltd v Union of India 2023:BHC – AS: 37549-DB.
[2] 2020 TIOL 1858 HC MAD GST.
[3] 2021-TIOL-604-HC-MAD-GST.
[4] MANU/OR/0522/2023.
[5] MANU/JH/1003/2022.