Orient Trader VS Deputy Commissioner Of Commercial Taxes

In this petition, the petitioner has requested the court to issue a Writ of Mandamus directing the Respondent No.1 to allow the petitioner to rectify the GST returns filed for July 2017 and March 2018, to issue a Writ of Certiorari quashing the Audit Report dated 27.08.2021 bearing reference No. 3207/27.08.2021 issued by the 1st Respondent (Annexure-C), and to pass any other orders, writs, or directions that the court deems fit under the facts and circumstances of this case in the interest of justice and equity; the petitioner, engaged in the supply of machinery, mechanical appliances, parts, and their erection, commissioning, and installation, had duly submitted its GST Returns in Form GSTR 3-B for the Financial Year 2017-18 (FY); on 20.01.2021, the 1st respondent issued a notice to the petitioner calling for books of accounts in order to conduct a Desk Audit and directed the petitioner’s attendance.

On 12.02.2021, the authorized representative of the petitioner appeared before the 1st respondent multiple times to present the books of accounts and records for verification. Subsequently, on 12.07.2021, the 1st respondent issued an Audit Enquiry under Section 65(6) of the Karnataka Goods and Services Tax Act, 2017, in conjunction with Rule 101(4) of the Karnataka Goods and Services Rules, 2017, requesting the petitioner to file a response within seven days. The petitioner duly responded to the audit enquiry observations and, during the review of its filed returns, discovered certain inadvertent errors and mistakes made in the returns for FY 2017-18. Specifically, the petitioner realized it had mistakenly claimed Input Tax Credit (ITC) related to imports under Integrated Goods and Services Tax (IGST) in July 2017 and March 2018 in Column No. 4A(5) instead of Column No. 4A(1) due to oversight and inadvertence.

On 12.02.2021, the petitioner’s duly authorized representative appeared before the 1st respondent multiple times to produce books of accounts and records for verification. Following this, the 1st respondent issued an Audit Enquiry on 12.07.2021 under Section 65(6) of the Karnataka Goods and Services Tax Act, 2017 (KGST Act) and Rule 101(4) of the Karnataka Goods and Services Rules, 2017, requiring the petitioner to respond within seven days. The petitioner responded to the audit enquiry, and while reviewing its filed returns, discovered inadvertent errors made in its returns for FY 2017-18. Specifically, the petitioner had incorrectly claimed Input Tax Credit (ITC) for imports under Integrated Goods and Services Tax (IGST) in July 2017 and March 2018, mistakenly entering these figures in Column No. 4A(5) instead of Column No. 4A(1). This error led to a mismatch between the GSTR-3B and GSTR-2A forms, causing the 1st respondent-DCCT to propose disallowing the ITC accrued to the petitioner. The petitioner sought permission to rectify these errors by submitting a revised input table in its reply dated 29.07.2021, but this request was rejected by the 1st respondent-DCCT. Based on the audit report dated 27.08.2021, a show cause notice was issued on 17.01.2022 under Section 73(1) of the KGST and CGST Acts, proposing to disallow the ITC due to the errors made by the petitioner. Aggrieved by this, the petitioner has approached the Court with the present petition. The matter was heard by the learned Senior counsel for the petitioner and the learned AGA for the respondents – State.

On 12.02.2021, the duly authorised representative of the petitioner appeared before the 1st respondent on various dates and produced books of accounts and records for verification. The 1st respondent then issued an Audit Enquiry on 12.07.2021 under Section 65(6) of the Karnataka Goods and Services Tax Act, 2017 (KGST Act), read with Rule 101(4) of the Karnataka Goods and Services Rules, 2017, asking the petitioner to respond within seven days. The petitioner filed a response to the audit enquiry observations and, upon reviewing its returns, noticed inadvertent errors made in the FY 2017-18. Specifically, the petitioner had mistakenly claimed Input Tax Credit (ITC) related to imports under Integrated Goods and Services Tax (IGST) in July 2017 and March 2018 in the wrong column, leading to a mismatch between GSTR-3B and GSTR-2A forms. The 1st respondent-DCCT, in its audit report, noted that this error could lead to the disallowance of the accrued ITC. The petitioner sought permission to rectify these errors by submitting a revised input table in a reply dated 29.07.2021, but this request was rejected by the 1st respondent-DCCT. Consequently, a show cause notice was issued on 17.01.2022, proposing to disallow the ITC related to the mentioned errors. The petitioner then approached the Court through the present petition, with the learned Senior Counsel for the petitioner arguing that the errors occurred during the early stages of the GST regime, which started on 01.07.2017, involving significant changes in the tax system requiring numerous returns in new formats. The Senior Counsel emphasized that the errors were bona fide and minor, suggesting a lenient view as rectifying them would not result in revenue loss or disrupt the GST scheme. Additionally, the counsel highlighted that for FY 2017-18, GSTR-3B was only a temporary measure until the Government implemented the statutory returns under Forms GSTR 2, 2A, and 3 as prescribed under the GST Act, and the auto-fill mechanism had not been fully operational during that period, leading to such inadvertent errors.

In response to the notice, the petitioner’s representative attended hearings before the 1st respondent and submitted their books for verification. Following this, the 1st respondent issued an Audit Enquiry on 12.07.2021 under Section 65(6) of the Karnataka Goods and Services Tax Act, 2017, prompting the petitioner to respond within seven days under Rule 101(4) of the Karnataka Goods and Services Rules, 2017.

The petitioner acknowledged inadvertent errors in their returns for FY 2017-18 upon reviewing their filings. Specifically, they noted incorrectly claiming Input Tax Credit (ITC) related to IGST on imports in July 2017 and March 2018 under the wrong columns, leading to mismatches between GSTR-3B and GSTR-2A. The 1st respondent’s audit report subsequently suggested disallowing the accrued ITC due to these errors, culminating in a show cause notice on 17.01.2022 under Section 73(1) of the KGST and CGST Acts.

In response, the petitioner sought permission to rectify these errors through a revised input table, which was rejected by the 1st respondent. Now before the court, the petitioner argues that these mistakes were made during the early stages of GST implementation, amidst significant changes to the indirect tax regime. They contend that such errors were unintentional and should be viewed leniently, especially as rectifying them now would not impact revenue or disrupt GST operations.

The petitioner’s counsel further explains that the filing system during FY 2017-18 was transitional, with temporary measures like Form GSTR-3B in place until statutory forms like GSTR-2, 2A, and 3 were fully operational. They highlight technical challenges in manually entering data on the GST Portal before auto-fill mechanisms were available from 04.09.2020, which exacerbated the likelihood of errors.

Lastly, the petitioner asserts that relevant details regarding IGST on imports are accessible through the ICE-GATE portal maintained by the Customs Department, except for the months in question (July 2017 and March 2018). They argue that a holistic assessment, considering all available records and not just filed returns, would demonstrate the petitioner’s eligibility for the disputed ITC amount, affirming that the errors were genuinely inadvertent.

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