Case Law Details
Lotus Pharmaceuticals Vs Assistant State Tax Officer (Kerala High Court)
Kerala High Court held that the statue permits taxpayer to correct bonafide errors by self-verification of assessment and payment of liability until the notice is issued under section 73 of the CGST. Accordingly, bonafide error in assessment and intimation in DRC-03 is directed to be allowed.
Facts- For F.Y. 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 u/s. 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/-.
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 u/s. 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. 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 u/d. 73(9) of the CGST Act as well as the order dismissing its application for rectification.
Conclusion- Held that 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.
Held that 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.
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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