Case Law Details
Lotus Pharmaceuticals Vs Assistant State Tax Officer (Kerala High Court)
Kerala High Court has intervened in a dispute concerning a Goods and Services Tax (GST) liability, setting aside an order that dismissed a rectification application filed by Lotus Pharmaceuticals, a partnership firm. The High Court has directed the Assistant State Tax Officer to reconsider the firm’s application, emphasizing the need to account for a bona fide typographical error in a payment intimation.
The case revolves around an alleged excess input tax credit (ITC) availed by Lotus Pharmaceuticals for the financial year 2018-19. Authorities claimed the firm had wrongly availed ITC amounting to Rs. 3,51,00,063/-. A show cause notice was issued on December 28, 2023, seeking recovery under Section 73(1) of the Central Goods and Services Tax Act, 2017 (CGST Act).
Lotus Pharmaceuticals responded, asserting that upon discovering the error, they had promptly reversed the excess ITC along with interest. An intimation, Form DRC-03, was filed on January 30, 2020, to this effect. The firm contended that they had rectified the error as soon as it came to their knowledge.
However, on April 20, 2024, the proper officer rejected the firm’s objections, imposing a total liability of Rs. 6,88,64,182/-, which included tax, interest, and penalty. The rejection was based on the premise that the DRC-03 intimation related to the financial year 2019-20, not 2018-19, and that no corresponding information or report regarding the payment was provided by either the proper officer or the taxpayer for the correct period.
Aggrieved by this refusal to acknowledge their prior payment, Lotus Pharmaceuticals filed a rectification application under Section 161 of the CGST/SGST Act. They reiterated that the DRC-03 filed on January 30, 2020, for Rs. 3,50,38,644/-, could only correspond to the 2018-19 GST credit, and that the year “2019-20” was a typographical error. The firm argued that since the intimation was not rejected at the time, they could not identify the mistake earlier. They further contended that it was logical to assume the substantial deposit was for 2018-19, given no pending liability for 2019-20.
Despite these arguments, the rectification petition was dismissed on November 29, 2024, with the authority ignoring the clarification about the typographical error. This led Lotus Pharmaceuticals to challenge both the determination order under Section 73(9) of the CGST Act and the order dismissing their rectification application before the Kerala High Court.
During the High Court proceedings, it was acknowledged that while verifying monthly returns for 2018-19, discrepancies in ITC availed by the petitioner were noticed. The petitioner voluntarily paid the entire tax due and intimated it via DRC-03 on January 30, 2020, as per Rule 142(2) of the CGST Rules, 2017. The core issue remained the incorrect mention of the financial year as 2019-20 instead of 2018-19 in the DRC-03.
The High Court observed that there was no dispute regarding the payment of a significant amount (Rs. 3,50,94,614/-) by Lotus Pharmaceuticals through DRC-03. The court emphasized that if the intimation did not pertain to 2019-20, the proper officer should have rejected it rather than accepting the payment. Given that the proper officer had no case of existing liability for the firm in 2019-20, the payment could only have been for 2018-19, as claimed by the petitioner, and this could have been identified from records available on the tax portal.
The court noted that the rectification application was dismissed solely because the DRC-03 intimation referred to the period as 2019-20. It highlighted that Rule 142(2) of the CGST Rules, 2017, makes DRC-03 merely a mode of intimation, and the proper officer is obligated to issue an acknowledgment in Form DRC-04. The absence of such an acknowledgment and the fact that the DRC-03 was not rejected were significant. The court reasoned that had the application been rejected due to the financial year error, the petitioner could have re-submitted it with the correct period within the available time.
The High Court further clarified the interpretation of “record” in the context of rectification powers. It stated that the term should not be restrictively interpreted to only the order being rectified but should encompass all proceedings and documents available for the case, including returns filed by the taxpayer. The error, of course, needed to be obvious and self-evident for the power of rectification to be exercised.
Judicial Precedents Cited:
The High Court drew support from established judicial precedents on the scope of “mistake apparent from the record”:
- In Pankaj Kumar Dasgupta v. State of Tripura and Ors. [(1990) 79 STC 409 (Gauhati)], the Gauhati High Court held that a mistake apparent from the record includes not only the order itself but also all proceedings forming the basis of that order.
- Similarly, in Gammon India Limited v. Commissioner of Income Tax [(1995) 214 ITR 50 (Bom)], the Bombay High Court, dealing with Section 154 of the Indian Income Tax Act, 1961, opined that “record” encompasses the entire case proceedings, including documents and materials produced by parties and taken on record by authorities at the time of the original order.
The High Court underscored that when bona fide mistakes are identified and the taxpayer takes immediate corrective action, they should not face exorbitant penalties. Such impositions, the court stated, would lack the backing of Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by authority of law. The court emphasized that if a bona fide error existed in the DRC-03 intimation and no liability for the stated financial year was present, the proper officer should have rejected the application immediately, allowing the taxpayer to correct the mistake. The court noted that until a notice under Section 73 of the CGST Act is issued, the statute permits taxpayers to correct such bona fide errors through self-verification and payment of liability.
Upon reviewing the order dismissing the rectification application, the High Court observed that the proper officer had merely dismissed it without considering the nature of the error. The court concluded that if records indicated a bona fide mistake in determining tax liability, evident from available portal records, the proper officer should have rectified the order instead of imposing a substantial liability.
Consequently, the Kerala High Court set aside the order dismissing the rectification application (Ext.P15). The third respondent has been directed to reconsider the application as expeditiously as possible, within three months from the date of receiving the judgment, and after granting the petitioner an opportunity of hearing. The writ petition was allowed on these terms.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
Petitioner – a partnership firm, challenges an order of determination under Section 73(9) of the Central Goods and Services Tax Act, 2017 and State Goods and Services Tax Act, 2017 (for short, ‘the CGST/ SGST Act’). Petitioner also challenges an order dismissing an application for rectification.
2. For the financial year 2018-19, petitioner was alleged to have availed excess input tax credit. A show cause notice was issued on 28.12.2023, calling upon the petitioner to explain why the excess ITC, wrongly availed to the tune of Rs. 3,51,00,063/-, should not be recovered under section 73(1) of the CGST Act. A reply was filed, stating that, immediately upon noticing the wrong availing of ITC, petitioner had reversed it along with interest and an intimation as DRC-03 had also been filed on 30-01-2020. According to the petitioner, as soon as the error came to its knowledge, it had rectified it. However, by an order dated 20.04.2024, the proper officer rejected the objections and imposed a total liability of Rs.6,88,64,182/- inclusive of tax, interest and penalty.
3. In the aforesaid order, it was observed that, DRC-03 alleged to have been filed by the petitioner, cannot be accepted, as, on verification, it was realized that the said intimation related to the period 2019-20, though the taxpayer had stated that it was a mistake for the period 2018-19. It was further observed that the claim could not be accepted as neither the proper officer nor the taxable person had given any information or report regarding such payment made by the taxable person to the corresponding period.
4. Aggrieved by the refusal of the authorities to accept the payment already made by the petitioner to reverse the wrongly availed ITC, petitioner filed a rectification application under Section 161 of the CGST/SGST Act, once again pointing out that DRC-03 filed on
30.01.2020 after making a payment of Rs.3,50,38,644/- could only correspond to the GST credit availed in excess for the year 2018-19 and that the impugned order was passed without considering the said payment as having been appropriated for the said financial year. It was also pointed out that due to a typographical error, the year was shown as 2019-20 in DRC-03 instead of 2018-19. However, since there was no rejection of the intimation, petitioner could not identify the mistake. According to the petitioner, it is only logical to assume that the huge deposit was made for the year 2018-19, especially since there was no pending liability for the year 2019-20. Petitioner contended that the mistake in DRC-03 application referring to the period as 2019-20, was specifically clarified as only an error, but the authority ignored the said contention and by the impugned order dated 29.11.2024, the rectification petition was dismissed. Petitioner is aggrieved by the impugned order of determination under Section 73(9) of the CGST Act as well as the order dismissing its application for rectification.
5. I have heard Sri K. S. Hariharan, the learned counsel for the petitioner, and Smt. M. M. Jasmin, the learned Government Pleader.
6. While verifying the monthly returns for the year 2018-19, the proper officer noticed certain discrepancies with respect to the ITC availed by the petitioner. On verification of the monthly returns and the statement of outward supply furnished by the suppliers, it was noticed that petitioner had availed ineligible ITC for the period 2018-19. Immediately upon realizing the incorrect availing of ITC, petitioner voluntarily paid the entire tax due from it and intimated the same by submitting DRC-03 on 30.01.2020, as required under Rule 142(2) of the CGST Rules, 2017. However, in the intimation filed as DRC-03, the financial year was, by mistake, mentioned as 2019-20, instead of 2018-19.
7. 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. This could have been identified from the records available in the portal. However, the rectification order has been rejected solely for the reason that DRC-03 intimation referred to the period as 2019-20. In this context, it needs to be mentioned that as per Rule 142(2) of the CGST Rules, 2017, DRC-03 is only a mode of intimation and the proper officer is even bound to issue an acknowledgment accepting the payment in Form DRC-04. 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.
8. 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. Under the provisions CGST/SGST, record will include even the returns filed by the taxpayer. Of course, the error has to be obvious and self-evident to exercise the power of rectification.
9. In this context, it is appropriate to refer to the decision of the Gauhati High Court in Pankaj Kumar Dasgupta v. State of Tripura and Ors. [(1990) 79 STC 409 (Gauhati)] wherein it was observed that a mistake apparent from the record means not only the order but also all proceedings from which the order in question is based. Similarly, in the decision in Gammon India Limited v. Commissioner of Income Tax [(1995) 214 ITR 50 (Bom)] while dealing with a question arising under section 154 of the Indian Tax Act 1961, the Bombay High Court held that the term ’record’ would mean records of the case comprising of the entire proceedings, including documents and materials produced by the parties and taken on record by the authorities which were available at the time of passing of the order which is the subject matter of proceedings for rectification.
10. 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. As noted earlier, if the intimation in DRC-03 contained a bonafide error in the financial year mentioned therein, and if there was in fact no such liability for the said financial year, it was always open to the proper officer to have rejected the said application immediately, which would have enabled the taxpayer to identify the mistake and correct it. Until the issuance of notice under section 73 of the CGST, the statute permits the petitioner to correct such bonafide errors by a self-verification of the assessment and payment of liability.
11. 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.
12. Accordingly, Ext.P15 order dismissing the application for rectification is set aside. The third respondent is directed to reconsider the application for rectification, as expeditiously as possible, at any rate, within a period of three months from the date of receipt of a copy of this judgment, after granting an opportunity of hearing to the petitioner. The writ petition is allowed as above.
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