Landmark Decision: Supreme Court (SC) strikes down Delhi High Court (HC) verdict in the case of Bharti Airtel Limited
In this remarkable judgement favouring the Government (for a change), this is an historic verdict which will set the course of the future litigations fought in the highest courts. This judgement and the judgement of VKC Footsteps (SC strikes down Gujarat HC verdict on refund of ITC on input services (taxguru.in) which went against the assessee. This verdict has opened our eyes on some important facts and also reminded us that by interpreting the law as per our convenience, the sufferers will be the taxpayers.
The High Court had allowed the assessee to rectify his form GSTR 3B for the period for which the error had occurred and directed the Government that on filing of GSTR 3B, they shall within two weeks, verify the claim and give effect to the same once verified.
The issue in hand was, Bharti Airtel Ltd had an not claimed certain input tax credit for the period July 2017 to September 2017 and realized the error subsequently after a period of almost a year and a half and argued in the High Court that since the common portal was not fully functional during that period, it was not possible for them to verify the correctness of the input tax credit and because of the fault of the portal, as well as the non-availability of the option to revise the said return, they could not claim the input tax credit of Rs.923 crs. GSTR 2A was operational only from September 2018 and only that time they realized that they had enough balance in their electronic credit ledger. Further due to non-functionality of GSTR 2A, assessee had to discharge its output tax liability by depositing / paying in cash. Had GSTR 2A been operational, there would have been no requirement to pay the liability in cash and would have adjusted the amount with their credit ledger. Therefore, Bharti Airtel had urged the High Court to adjust the credit lying unutilized with the liability and transfer the cash portion, which was paid, to the electronic cash ledger.
The highlights of the High Court Judgement were as follows:
1. The High Court in its judgment took note of the repeated technical glitches in the electronic common portal introduced by the Department, during the transition phase from the erstwhile regime to the GST regime.
2. The High Court then noted that assessee had submitted its monthly Form GSTR-3B based on estimates, for the relevant period of July to September 2017.
3. Further, the exact ITC in the electronic credit ledger for the relevant period could be known only a month later in October 2018, when GSTR-2A became operational.
4. Only thereafter, assessee realized that there had been an excess payment of Rs.923 crores in cash for discharging OTL. In other words, despite the fact that a bona fide error had occurred for reasons beyond the control of assessee, yet assessee was unable to correct the mistake in Form GSTR-3B for the relevant period.
5. The High Court held that GST contemplated a self-policing system. Resultantly, the statutory provisions had provided for generation of auto-populated data of the stakeholders. That was a right and not a mere facility made available to registered persons. Thus, every registered person had a right to correct the returns in the very month to which they relate and not visited with any adverse consequences for uploading incorrect data.
6. The High Court noted the admission of the Department that the operation of Forms GSTR-2 and GSTR-3 could not be effected due to technical issues at their end necessitating postponement for indefinite period. In other words, the Department itself was not fully geared up to handle such an elaborate electronic procedure.
7. The High Court further noted as to how due to non-functioning of Forms GSTR-2 and GSTR-3, Rule 61(5) and 61(6) was required to be inserted in the 2017 Rules and provide for monthly return in Form GSTR-3B, which was a summary return.
8. The High Court also accepted the contention of Bharti Airtel that it had to discharge the output tax liability for the relevant period in cash, even though it had ITC available to its credit in electronic credit ledger, due to the fault of the Department in not operationalizing the statutorily prescribed Forms GSTR-2, GSTR-2A and GSTR-3.
9. Accordingly, the High Court allowed the writ petition and permitted Bharti Airtel to rectify Form GSTR-3B for the period to which the ‘error relates’ i.e., the months of July to September 2017.
Government knocked the door of the Supreme Court and challenged the decision of the Delhi High Court on the following grounds:
1. It was urged that the High Court had no territorial jurisdiction to entertain the writ petition filed by Bharti Airtel. This objection is founded on the argument that the source of power to levy and collect GST under the 2017 Act vests both in the State and the Centre.
2. As regards the eligibility and utilization of ITC, there is a statutory duty fastened on every registered person governed under various regimes and presently under the GST law, to pay output tax liability and a corresponding right to avail and utilize ITC, subject to eligibility and conditions specified therefor. The right to claim ITC, being a statutory right, is circumscribed by conditions and restrictions, subject to which a registered person is entitled to take credit.
3. It is imperative upon a registered person to maintain records regarding transactions between suppliers and the recipients based on their agreements, invoices and books of accounts, either manually or electronically. The records so maintained by the registered person would itself reveal about the eligibility to credit; and its availment is within the exclusive domain of the supplier and the recipient concerned.
4. The registered person under the law is obliged to do a self-assessment of its transactions and determine the OTL and exercise the option to avail of and utilize the ITC to the extent required or to pay the output tax liability by cash. The Authorities have no role to play whatsoever in that regard. It is an option to be exercised by the registered person and not by the Authorities.
5. Indeed, the registered person has been provided with a common electronic portal or tax electronic portal, which is only an enabler and a facilitator in bringing on board all the registered persons which include the supplier, recipient, registered person and other recipients.
6. The efficacy of common electronic portal or so to say malfunctioning thereof, does not extricate the registered person from the primary obligation of self-assessment of output tax liability as predicated in Section 16 of the 2017 Act. For doing so, the registered person is obliged to maintain accounts and records as envisaged under Chapter VII of the 2017 Rules. That ought to be the basis for self-assessment of OTL in the first place.
7. Suffice it to observe that the registered person is expected to exercise the option of utilizing ITC or to pay by cash for discharging his OTL at the time of filing of return on the information gathered from the primary record in his possession.
8. Every registered person is required to self-assess the taxes payable under the 2017 Act and furnish a return for each tax period as specified under Section 39 of the 2017 Act.
9. The registered person cannot find fault with the deficiencies in the common electronic portal so as to extricate from this obligation. Similar obligation was required to be discharged by him even before the GST regime came into being vide the 2017 Act with effect from 01.07.2017.
10. Form GSTR-3B, which contains necessary information relevant for completing the self-assessment process and payment of output tax liability, if any. Though a stop gap arrangement, it was always treated as return within the meaning of Section 39 of the 2017 Act.
In the historic judgement, the Supreme Court held that:
1. The court rejected the argument of the jurisdiction of the High Court with regard to the State Governments / Union Territories not party to the petition. The Supreme Court held that the petitioner had not challenged any individual action of any States or Union Territories, but a policy decision of the Central Authority.
2. The registered person was under a legal obligation to maintain books of accounts and records as per the provisions of the 2017 Act and Chapter VII of the 2017 Rules regarding the transactions in respect of which the output tax liability would occur.
3. Even in the past (till recently upto the 2017 Act came into force), during the pre-GST regime, the writ petitioner (being registered person/assessee) had been maintaining such books of accounts and records and submitting returns on its own. No such auto-populated electronic data was in vogue. It is the same pattern which had to be followed by the registered person in the post-GST regime.
4. The common portal is only a facilitator to feed or retrieve such information and need not be the primary source for doing self-assessment. The primary source is in the form of agreements, invoices/challans, receipts of the goods and services and books of accounts which are maintained by the assessee manually/electronically. These are not within the control of the tax authorities.
5. The fact remains that for furnishing of returns, preparatory work has to be done by the assessee himself and is not fully or wholly dependent on the common electronic portal for that purpose. Just couple of weeks before the relevant period between July and September 2017, the writ petitioner/respondent No. 1 had been doing that exercise which it was expected to continue even under the post-GST scheme. The factum of non-operability of Form GSTR-2A, therefore, is flimsy plea taken by the writ petitioner/respondent No. 1.
Finally Honourable Supreme Court concluded as follows:
It is a statutory obligation fastened upon the registered person to maintain books of accounts and record within the meaning of Chapter VII of the 2017 Rules, which are primary documents and source material on the basis of which self-assessment is done by the registered person including about his eligibility and entitlement to get ITC and of output tax liability. Form GSTR-2A is only a facilitator for taking an informed decision while doing such self-assessment. Non performance or non-operability of Form GSTR-2A or for that matter, other forms, will be of no avail because the dispensation stipulated at the relevant time obliged the registered person to submit returns on the basis of such self-assessment in Form GSTR-3B manually on electronic platform. Despite the availability of funds in the electronic credit ledger, the registered person opts to discharge output tax liability by paying cash. That is a matter of option exercised by the registered person on which the tax authorities have no control. Further, there is no express provision permitting swapping of entries effected in the electronic cash ledger vis-a-vis the electronic credit ledger or vice versa. Resultantly, assessee cannot be permitted to unilaterally carry out rectification of his returns submitted electronically in Form GSTR-3B, which inevitably would affect the obligations and liabilities of other stakeholders, because of the cascading effect in their electronic records.