Gauhati High Court Clarifies Recovery on GSTR-1/GSTR-3B Mismatch and ITC Time Bar under GST

Overview of the Decision

The Gauhati High Court (Kohima Bench) in M/s ITI Ltd. Vs Union of India And 6 Ors. examined whether the department can straightaway treat a difference between GSTR-1 and GSTR-3B as “self-assessed tax” under Section 75(12) of the CGST Act and initiate direct recovery, and whether Input Tax Credit could be denied for belated filing of GSTR-3B for FY 2018–19 in light of the newly inserted Section 16(5).

The Court set aside the order dated April 30, 2024 passed by the Assistant Commissioner, CGST, Dimapur Division, and held in essence:

  • Mere mismatch between GSTR-1 and GSTR-3B, arising from bona fide clerical error, cannot be mechanically treated as “self-assessed tax” for recovery under Section 75(12) without first following Rule 88C procedure.
  • ITC for March 2019 cannot be denied in view of retrospective Section 16(5) which overrides the earlier limitation under Section 16(4) for specified years.

Factual Background

Business and Registration

  • The Petitioner, M/s ITI Ltd., has its principal place of business at Dimapur, Nagaland.
  • It is engaged in supply of goods and is a registered person under the CGST Act.

Error in GSTR-1 vs Correct Reporting in GSTR-3B/GSTR-9

For Financial Year 2018–19:

  • While furnishing GSTR-1 (details of outward supplies under Section 37), the assessee:

    • Accidentally reported 18% GST instead of 12% against four invoices.
    • Incorrectly disclosed a credit note in GSTR-1.

  • However, in the corresponding:

    • GSTR-3B filed under Section 39, and

    • Annual return GSTR-9
      the assessee correctly:

    • Reflected GST at 12% for those four invoices, and

    • Properly adjusted the credit note.

  • The assessee did not revise GSTR-1 within the permissible rectification window under Section 37(3).

Department’s Action

Without issuing any prior intimation under Rule 88C:

  • The Assistant Commissioner (Respondent No. 7) directly invoked the Explanation to Section 75(12) (effective from January 01, 2022).
  • He treated the higher tax liability appearing in GSTR-1 as “self-assessed tax” and:
    • Raised a demand for the difference between GSTR-1 and GSTR-3B, along with interest.

Separately:

  • The same authority rejected ITC claimed in GSTR-3B for March 2019, on the ground that:
    • The GSTR-3B for March 2019 was filed on March 13, 2021,
    • Which, according to Section 16(4), was beyond the last date for availing ITC on that invoice period.

The Petitioner approached the High Court challenging, inter alia, the order dated April 30, 2024 and certain notifications, though the primary grievance centred on this order.

Key Issues Before the Court

1. GSTR-1 vs GSTR-3B Mismatch and “Self-Assessed Tax”

  • Can every discrepancy between GSTR-1 and GSTR-3B, arising purely from bona fide clerical or arithmetical mistakes, be automatically treated as “self-assessed tax” under the Explanation to Section 75(12), justifying direct recovery under Section 79?
  • Is adherence to Rule 88C compulsory before invoking the Explanation to Section 75(12)?

2. Incorrect Higher Rate in GSTR-1 vs Statutory Rate

  • Is the department entitled to levy and recover GST at 18% merely because such rate was erroneously disclosed in GSTR-1, when the correct statutory rate applicable to the supplies was 12%?

3. Denial of ITC for March 2019 under Section 16(4)

  • In light of retrospective Section 16(5) (inserted by the Finance (No. 2) Act, 2024), can ITC for March 2019 be denied on the basis that GSTR-3B was filed belatedly on March 13, 2021?

Court’s Findings and Reasoning

A. On GSTR-1/GSTR-3B Mismatch and Rule 88C

Nature of the Error

  • The Court noted that:

    • The discrepancy arose because the assessee accidentally entered 18% GST in GSTR-1 instead of 12% for four invoices.
    • Invoices themselves reflected 12%, and the same rate was also captured correctly in:
      • GSTR-3B, and
      • GSTR-9 (annual return).

  • The error regarding the credit note was also a reporting mistake in GSTR-1, while GSTR-3B and GSTR-9 correctly factored in the reduction.

Mandatory Procedure under Rule 88C

  • Rule 88C requires that when outward tax liability in GSTR-1 exceeds that reported in GSTR-3B by a prescribed threshold:

    1. The proper officer must issue an intimation in Form GST DRC-01B on the common portal.
    2. The assessee must be given an opportunity to:
      • Either pay the differential tax with interest; or
      • Furnish a written explanation outlining reasons for the difference.