HC Allows GST Return Rectification, Quashes Rs. 10.99 Cr Credit Reversal Forced Through DRC-03

Shree Ambica Auto Sales and Service, a GST-registered dealer, had availed input tax credit (ITC) on invoices issued by Tata Motors Ltd. Thereafter, Tata Motors issued credit notes for post-sale discounts. The petitioner issued corresponding debit notes, admitted tax liability on such debit notes, and paid GST through regular returns in Forms GSTR-1 and GSTR-3B. Due to a technical mismatch in the GST portal, the department treated the transaction as excess ITC availment.

During inspection, the authorities allegedly coerced the petitioner into reversing the entire available ITC of Rs. 10.99 crore by filing Form DRC-03. A later order refused appropriation of the tax already paid, despite the Show Cause Notice itself proposing reversal of ITC lower than the tax already deposited. The petitioner challenged both the recovery and the denial of rectification.

Main Issue: Whether GST authorities can deny rectification of bona fide return errors and compel reversal of ITC through DRC-03 when the transaction is revenue-neutral and no loss to the exchequer is shown.

HC Ruled: The Hon’ble High Court quashed the impugned order dated 26.12.2023 and held that the entire action of the department was unsustainable. The Court ruled that inadvertent and bona fide errors in GST returns must be allowed to be rectified when there is no revenue loss. It was held that GST provisions must be interpreted purposively and technical limitations of the portal cannot defeat substantive justice.

The Court directed the department to reopen the GST portal to enable rectification of Forms GSTR-1 and GSTR-3B within stipulated timelines, failing which manual rectification must be accepted. The forced reversal of Rs. 10.99 crore and filing of DRC-03 was held to be unjustified, and the Show Cause Notice was declared non-est.

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