Supreme Court Allows Buyers to Correct Clerical Errors in GST Filing Without Penalty, Ensuring ITC Claims

In a big relief to taxpayers, the Supreme Court has held that companies can correct clerical or human mistakes in their Goods and Services Tax (GST) returns without incurring penalties. Companies should also not be deprived of Input Tax Credit (ITC) on account of such errors. This judgement is likely to reduce compliance burdens for companies and add more clarity to the GST regime.

The Supreme Court noted the rigorous interpretation of deadlines for rectification by tax departments and has sent a notice to the Central Board of Indirect Taxes and Customs (CBIC) to re-examine the matter. The judgement was issued in response to an appeal moved by CBIC against a decision of the Bombay High Court in the case of Aberdare Technologies. The High Court had previously allowed the rectification of GST returns, both electronically and manually.

During the pronouncement of the judgement, the Supreme Court laid importance on CBIC revisiting the rules and timeframes provided for rectifying bonafide errors. It was noted that deadlines must be practical, as taxpayers tend to discover errors only when claims related to ITC are rejected because of inconsistencies in tax returns. The court also noted that errors occur due to human mistakes and that even tax offices commit errors themselves.

The Division Bench, comprising Chief Justice Sanjiv Khanna and Justice Sanjay Kumar, also dismissed CBIC’s special leave petition, observing that software constraints cannot be the rationale for the rejection of genuine ITC claims. It was observed that the compliance mechanisms should be made for the benefit of taxpayers and not impose undue burdens.

Tax professionals have hailed the decision, appreciating the fact that ITC denials on account of minor clerical or technical mistakes had long been a nemesis for businesses. As per the Central GST Act, buyers are allowed to claim ITC on tax invoices of suppliers, which must be correctly recorded in GST returns. However, sometimes suppliers’ mistakes led to the denial of ITC to buyers, causing financial and compliance problems.

The Supreme Court ruling has been interpreted as a strong reaffirmation of a taxpayer-friendly GST regime. Experts feel this ruling strengthens the compliance-should-be-practical-and-not-punitive principle. Companies now have more reasons to challenge abusive credit denials, and the CBIC may have to reassess its error correction stand. The CBIC response will play a key role in determining GST compliance and tax dispute resolution in India’s future.