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”:
