The turbulent journey of Form GSTR-3B under GST regime - An insight

Debasish Bandyopadhyay, B.Com, LL.B, PGDFM

During the process of implementation of GST in the country, initially, it was decided to incorporate three monthly returns i.e. return for outward supplies in Form GSTR-1 in terms of Section 37, return for inward supplies in terms of Section 38, in Form GSTR-2 and a combined return in Form GSTR-3. However, due to technical glitches in the GSTN portal as well as difficulty faced by the tax payers during the time of implementation, it was decided to temporarily suspend the filing of GSTR-2 and GSTR-3 and instead, to ease out the burden of compliance of the assesses across the country, GST Council had decided to introduce a shorter or summary return in Form GSTR-3B for initial period. In fact, GSRT-3B was introduced as a temporary stop gap in the place of return required to be filed in Form GSTR-3.

In the meantime, a writ petition was filed before the Hon'ble Gujarat High Court in the matter of AAP and Co. Vs Union of India - 2019-VIL-314-GUJ on the question, whether the return in Form GSTR-3B is a return required to be filed under Section 39 of the CGST Act/GGST Act' The Hon'ble Gujarat High Court had held that Form GSTR-3B is not a return as prescribed under the GST Laws. The issue is still alive, though the Government went to file appeal challenging the aforesaid judgment. In response to the said appeal, Hon'ble Supreme Court stayed the Gujarat HC judgement vide judgment dated 06/12/2019 which states that GSTR-3B is not a return under Section 39 of Central Goods & Services Tax Act, 2017.

Again, the turbulent turf of GSTR-3B got re-ignited in a recent development wherein the Delhi High Court has allowed to rectify the GSTR-3B for the error period July to September 2017. In the aforesaid matter of Bharti Airtel Ltd vs UOI - 2020-VIL-197-DEL, the fact of the case is that the petitioner contended that from July to Sept of 2017 the system did not reflect the ITC available with the Company, and they had to discharge its tax liabilities in cash. Afterwards, they realized that for the relevant period ITC had been under reported. Thus, they alleged that they had made huge excess payment of tax. Due to non-operationalization of Forms GSTR-2A, GSTR-2 and GSTR-3, such excess payment of tax went unnoticed. Accordingly, the petitioner challenged to validity of Rule 61(5) of the CGST Rules, Form GSTR- 3B and Circular No. 26/26/2017-GST to the extent, they do not provide for the modification of the information to be filled in the return of the tax period to which such information relates. Further, the challenge to aforesaid provisions principally on the ground that Petitioner is being prevented from correcting its monthly GST returns i.e. GSTR-3B.

On the other hand, the GST department contended that the Circular No. 26/26/2017-GST dated 29.12.2017 provides for the rectification of mistakes pertaining to earlier tax period in any subsequent tax period. In terms of para 4 of the impugned circular the Form GSTR-3B can be corrected only in the month in which the errors were noticed.

The Hon'ble Delhi High Court on 05.05.2020 - 2020-VIL-197-DEL in a landmark judgment has held that GSTR-3B can be rectified and observed that the correction Mechanism is critical for successful implementation of GST. Thus, the relevant para of the said circular is read down by the Hon'ble court to the extent that it restricts the rectification of Form GSTR-3B. The relevant part of the said judgment is given below;

".....We would also like to add that the Respondents have also not been able to expressly indicate the rationale for not allowing the rectification in the same month to which the Form GSTR-3B relates. The additional affidavit filed by the Respondents as per the directions of this Court, also skirts this question and has only attempted to give some explanation which is not convincing and lacks objectivity and rationality. Respondents have admitted that the facility of Form GSTR-2A was not available prior to 2018 and, as such, for the months of July, 2017 to September, 2017 the scheme as envisaged under the CGST Act was not implemented. Respondents have also clearly acknowledged that there could be errors in Form GSTR-2A which may need correction by the parties and have, in fact, permitted the rectification, clearly reinforcing the stand of the Petitioner. The refund of excess cash balance in terms of Section 49 (6) read with Section 54 of the CGST Act does not effectively redress Petitioner's grievance. Therefore, the only remedy that can enable the Petitioner to enjoy the benefit of the seamless utilization of the input tax credit is by way of rectification of its annual return i.e. GSTR-3B. ............................................................ The correction mechanism is critical to sustaining successful implementation of GST.

Thus, in light of the above discussion, the rectification of the return for that very month to which it relates is imperative and, accordingly, we read down para 4 of the impugned Circular No. 26/26/2017-GST dated 29.12.2017 to the extent that it restricts the rectification of Form GSTR-3B in respect of the period in which the error has occurred. Accordingly, we allow the present petition and permit the Petitioner to rectify Form GSTR-3B for the period to which the error relates, i.e. the relevant period from July, 2017 to September, 2017. ......................................."

It is pertinent to note that the aforesaid judgment may unlock floodgates of opportunities for the innumerable taxpayers across the country. It can be said that this judgement is really a path-breaking one in the realm of GST. It is true that assesses across the country had experienced severe teething issues during the course of implementation of GST in the country and therefore, this judgment is a well-deserved remedy for such taxpayers. However, the journey of disputes regarding GSTR-3B may not be ending here, since, the Department may challenge the said verdict before the Hon'ble Supreme Court of India. Till the time, let the controversy rest in peace.

[Date: 01.06.2020]

(The views expressed in this article are strictly personal)