#TaxmannPPT | Discussion on the Recent Supreme Court Judgement of Bharti Airtel

Discussion on Recent SC Judgment of Bharti Airtel __________________________________________________________________________________

Advocate V. Raghuraman TAXMANN Research and Advisory (Indirect Tax) Team

November 09, 2021

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Table of Content • Return filing System under GST

• Facts and arguments in case • Observations and conclusions of Delhi HC

• Observations and conclusions of SC • Analysis by Advocate V. Raghuraman

• Q & A Session

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1. Return filing system under GST

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Return Filing System under GST Laws • Furnishing details of outward supplies [Section 37(1) read with Rule 59*] - RP is required to furnish details of outward supplies effected during a tax period in Form GSTR-1

- On or before 10 of the succeeding tax period - Such details communicated to recipient in Form GSTR 2A/4A/6A

- Detail of outward supply is not allowed to be furnished during the period 11-15 of succeeding tax period - Power to extend GSTR 1 is given to Commissioner [Second proviso to Section 37(1)] *Rule 59 as existed in statue book during July – Sep 2017

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Return Filing System under GST Laws • Furnishing details of inward supplies [Section 38 read with Rule 60*] - RP is required to verify, validate, modify or delete details of outward supplies communicated to it in Form GSTR 2A and file Form GSTR 2

- He may add details of inward supply (including Debit & Credit Notes) in Form GSTR 2 which are not communicated to it - Form GSTR 2 would include other details also such as RCM transactions, import of goods, etc.

- Power to extend Form GSTR 2 is given to Commissioner - Form GSTR 2 is required to be filed during 11 to 15 of next month

• Communicating matched details [Section 42 read with Rule 70*] - Claim of ITC that matches with details of outward supply is finally accepted and communicated to recipient in Form GST MIS – 01 *Rule 70 as existed in statue book during July – Sep 2017

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Return Filing System under GST Laws • Treatment of extra claim of ITC by recipient [Section 37(2)] - Details which are added, corrected or deleted by recipient in Form GSTR 2 shall be made available to supplier in Form GSTR 1A [section 38(3) read with Rule 59(4)] - Supplier shall accept or reject the details so communicated - Such acceptance or rejection is required to be carried out between 15-17 of next month - Details of outward supplies would be amended accordingly • Treatment where details added/modified not accepted by supplier

- Such addition and modification (i.e. discrepancy) would be communicated to both supplier and recipient in Form GST MIS 1 and Form GST MIS 2 respectively (Rule 71) - Discrepancy which is not rectified by the supplier in the month in which discrepancy is communicated shall be added to the OTL of recipient (along with interest) succeeding the month in which discrepancy is communicated [Section 42(5)] - Separate provisions are given where supplier declares its liability is future

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Return Filing System – Originally envisaged under GST law Supplier 1

Uploading details of outward suppliers

Recipient 2

GSTR-1:

GSTR-2A:

Return of outward supplies

Details of inward supplies (auto-populated on the basis of GSTR-1)

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3 GSTR-1A:

GSTR-2:

Auto populated on basis of GSTR-2

Return of inward supplies

(changes may be approved or rejected by supplier)

(to be prepared on basis of GSTR-2A, changes made to be sent to supplier for approval)

Reconciliation with purchase register

In case of mismatch between GSTR-1 and GSTR-2, ITC to be allowed provisionally. Recipient's OTL would increase for mismatched ITC 8

Return Filing System under GST Laws • Treatment of Error or omission and incorrect particulars noticed at later stage Scenario

Treatment

Details of outward supplies

- Details which remained unmatched under Section 42 or 43 due to error or omission - Can be rectified in a specified manner - Pay tax and interest in return (if applicable)

[Section 37(3)]

Details of inward supplies [Section 38(5)]

Details in return [Section 39(9)]

- Details which remained unmatched under Section 42 or 43 due to error or omission - Can be rectified in a specified manner - In the tax period in which such error or omission are noticed - Pay tax and interest in return (if applicable) - Subject to provisions of Section 37 & 38 - Registered person discovers any omission or incorrect particulars in return - Rectify such omission or incorrect particulars - In the return to be furnished for the month/quarter during which such omission or incorrect particulars are noticed 9

Return Filing System under GST Laws

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Return Filing System under GST Laws

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Return Filing System under GST Laws – Clarifications Circular No: 7/7/2017-GST Dated 01.09.2017

• Vide this Circular, Govt. provided for system based reconciliation of information furnished in Form GSTR 1, 2 & 3B • Para 6 provides that any differences in details of outward supplies and ITC will be corrected in that particular month to which details pertain • Para 9 further provides that where eligible ITC recorded in GSTR-3B is less than ITC shown in GSTR-2, then such ITC will be correctly reflected in the GSTR-3 of that very month

• Details of eligible ITC have been reported incorrectly in GSTR 3B, the same maybe reported correctly in Form GSTR-2 for concerned tax period

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Return Filing System under GST Laws – Clarifications Circular No: 26/26/2017-GST Dated 29.12.2017

• Circular dated 7/7/2017 was kept in abeyance due to continuing extension of time lines to file Form GSTR-1, 2 and 3 and non-availability of facility to file Form GSTR-2 • Para 3.2 states that since Form GSTR-2 and 3 could not be operationalized, Circular dated 7-7-2017 is kept in abeyance till such time these two returns are operationalized • Para 4 states that Form GSTR-3B can be corrected only in month in which the errors were noticed

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2. Facts and arguments in case

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Facts - Before Delhi HC • Assessee had centralized registration under ST regime, obtained GST registrations in all States and UTs • Petitioner argued that for July - Sep 2017, lower ITC was claimed on estimation basis in GSTR 3B and balance OTL was paid in cash • ITC not availed of Rs. 923 crore was discovered in Sep 2018, when Form GSTR-2A made operationalised

• Petition was filed seeking rectification of GSTR 3B so that ITC can be claimed & tax paid in cash can be claimed as refund • Future OTL substantially reduced on account of low tariff in telecom sector • ITC was expected to grow in future and thus, accumulated ITC due to erroneous reporting, cannot be fully utilized

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Petitioner’s arguments – Before Delhi HC • Initially, new scheme of return filing, given in sections 37 to 43, was to be followed • It is statutory right to fill necessary details such as outward supplies, inward supplies, etc. which cannot be prejudice due to inability to run IT system • ITC was available but not reflected in GSTN system on account of lack of data • System related checks (i.e. Forms GSTR-2A, GSTR-2 & GSTR-3) could have forewarned the petitioner about the mistake • Due to non-operationalization of such form, assessee was compelled to discharge OTL in cash • Form GSTR-3B is a manual return having no checks in it, excess payment of tax went unnoticed

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Petitioner’s arguments – Before Delhi HC • No enabling statutory procedure implemented by Govt. to correct the returns • GST law provides data filled by a RP will be validated in that month itself • Not allowing rectification in month for which return is filed is contrary to above provision as any unmatched details be rectified in the month in which it is noticed • Rule 61(5) & Circular dated 29-12-2017 are ultra vires as these do not provide for modification in return of tax period to which such information relates

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Petitioner’s arguments – Before Delhi HC • Reliance on the following judgments: Case

Held

AAP & Company Chartered Accountants

Form GSTR-3B was not a return required to be filed under section 39 of CGST Act and was only a temporary facility

[2019] 107 taxmann.com 125 (Gujarat)

Panduranga Stone Crushers [2019] 108 taxmann.com 511 (Andhra Pradesh)

Adfert Technologies (P.) Ltd. [2019] 111 taxmann.com 27 (Punjab & Haryana)

Lease Plan India (P.) Ltd. [2019] 110 taxmann.com 423 (Delhi)

GST is still in a "trial and error" phase and has permitted the assesses to rectify/revise the returns

Blue Bird Pure (P.) Ltd [2019] 108 taxmann.com 218 (Delhi)

• Revision of Form GSTR-3B is revenue neutral since Govt has already realised tax leviable under law 18

Revenue’s arguments – Before Delhi HC • Section 39(9) provides that Changes have to be incorporated in return for tax period in which the error is noticed

• Assessee cannot reflect changes in Form GSTR-3B of original tax period • Circular No. 26/26/2017-GST aligned with such provisions of the statute

• Any changes made in original return of the supplier, would require modification in Form GSTR-3B furnished by recipient & therefore, enhance compliance burden for him • Till the time GSTR-3 gets operationalized, Form GSTR-3B is not in addition to GSTR-3, but in place of it

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3. Observations & Conclusions of Delhi HC

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Observations and Conclusions by Delhi HC • Statutory scheme provides for verification, etc. of information for each period • Self-policing system provides authenticity of details as details are auto-populated, verified and confirmed by both supplier & recipient in same month • Given procedure is a right and a facility to a RP which ensures correct ITC is availed • First stage of rectification can happen as per matching system • Second stage of rectification is provided u/s 38 (5) and 39 (9) wherein, for unmatched details

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Observations and Conclusions by Delhi HC • Form GSTR-3B, which is only a summary return as GSTR-2 and 3 could not be operationalized • Statutory scheme as envisioned has not been entirely put into operation

• If Form GSTR-2 & 3 had been operationalized, petitioner would have known correct ITC available to it in relevant period, and could have discharged its liability through ITC, instead of cash • No refund is available in such cases under GST law • With introduction of GSTR 3B, the form originally contemplated got fundamentally altered.

• Checks and balances which were prescribed in original forms got effaced which caused inaccuracies in data that is required to be filled in

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Observations and Conclusions by Delhi HC • Para 4 of Circular No. 26/26/2017-GST held as arbitrary and contrary to the provisions of CGST Act, 2017 • Rectification allowed and noted that there is no provision under law that would restrict such rectification • Increase compliance burden on recipient ? - Each case would have to turn on its own facts • Merely an absurd outcome in a given situation would not mean that benefit of rectification would not be given if the same is genuine

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4. Additional arguments before SC

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Revenue’s additional arguments – Before SC • RP is required to maintain records & books of accounts to determine eligibility of ITC • Obligation to self-assess all transactions & determine OTL • Common Portal is only enabler & facilitator to bring all registered persons together. Its efficacy would not release obligation of RP to self-assess OTL

• Discharging OTL in cash or by utilizing ITC is an option to RP • Matching & auto-population of records is only a facility • GSTR-3B, although a stop gap arrangement, was always treated as return under Section 39 • Rectification of GSTR-3B would result in issuing of refund of excess cash paid but GST law does not allow for swapping of entry in Electronic Cash ledger with Electronic Credit Ledger

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Bharti Airtel’s additional arguments – Before SC • Mechanism provided under Section 37 & Section 38 are not put in place, therefore, rectification under Section 39(9) would not be applicable where Form GSTR-3B is filed

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5. Observations & Conclusions of SC

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Observations and Conclusions by Supreme Court Obligation of assessee to self- assess and maintain books of accounts • RP is obliged to maintain BOA & records to self-assess ITC, balances lying in cash and credit ledger on basis of such records • SC compared positions of self-assessment under GST regime with pre-GST regime & observed that there is no difference in manner of determining OTL and ITC • Common portal is only a facilitator to feed and retrieve information & not primary source for doing self-assessment

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Observations and Conclusions by Supreme Court • Circular dated 29.12.2017 is not contrary to Section 39(9) and provides for correction when error/omissions are noticed

• GST law does not provide for refund of such excess tax • Paying OTL in cash is an option exercised by assessee which cannot be reversed unless law permit such reversal and swapping of entries • No provision exists under GST to permit swapping of entries effected in electronic cash ledger vis-a-vis electronic credit ledger or vice versa • SC held that Form GSTR-3B would be considered as return for all purposes. Specifically highlighted that validity of retrospective amendment of Rule 61(5) has not been challenged

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Observations and Conclusions by Supreme Court • Inability to access GSTN portal to submit TRAN-1 is different from swapping of entries of electronic credit ledger viz-a-viz electronic cash ledger

• Law allows to rectify omission/ incorrect particulars when noticed [Section 39(9)] • There is not denial for availment of ITC, it is only postponement of availing ITC

• Assessee cannot be permitted to unilateral rectification, as any change in return would effect obligations and liabilities of other stakeholders • Basis the above, SC set aside the judgement of Delhi HC

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5. Analysis by Advocate V Raghuraman

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Questions How would you see the

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