Karnataka High Court Sets Aside GST Demand Order: Extends Relief Under Circular for Invoice Rectification to FY 2019-20
Case Overview
In a significant ruling concerning the application of GST circulars for invoice rectification, the Karnataka High Court addressed the case of D. S. Engineering Works LIP Vs Assistant Commissioner of Commercial Taxes (Audit). The judicial body examined whether the remedial mechanism provided under Circular No.183/15/2022-GST dated 27.12.2022 could be extended to assessment years beyond those expressly mentioned in the circular, particularly for the financial year 2019-20.
The assessee had initially approached the High Court with multiple prayers, including a constitutional challenge to certain statutory provisions. However, during the proceedings, the assessee chose to narrow down the scope of their petition and focus on the practical relief available through existing circulars issued by the GST authorities.
Background and Facts of the Case
The dispute arose when the respondent authorities issued an adjudication order dated 06.08.2024 concerning the financial year 2019-20. The assessee, D. S. Engineering Works LIP, had committed certain errors in their invoices or statutory forms during the relevant assessment period. These mistakes had implications for their input tax credit claims under the GST framework.
The adjudication order passed by the Assistant Commissioner of Commercial Taxes (Audit) had denied relief to the assessee, leading to the filing of the present writ petition before the Karnataka High Court. The assessee sought to avail the benefit of the rectification mechanism provided under the GST circulars issued by the Central Board of Indirect Taxes and Customs.
Prayers Before the Court
The assessee initially sought comprehensive relief through the following prayers:
Constitutional Challenge
The primary prayer involved declaring Section 16(2)(c) of the CGST/SGST Acts as unconstitutional on the grounds that it violated Articles 14 and 19(1)(g) of the Constitution of India. This challenge was based on the argument that the provision was discriminatory and violated the fundamental right to carry on business.
Alternative Relief - Reading Down the Provision
As an alternative prayer, the assessee requested the Court to read down the phrase "has been actually paid" appearing in Section 16(2)(c) of the CGST/SGST Acts to interpret it as "ought to have been paid." This would have created a more liberal interpretation of the payment requirement for claiming input tax credit.
Quashing of Adjudication Order
The assessee specifically sought the quashing of the impugned Order of adjudication dated 06.08.2024, bearing reference number ACCT(AUDIT)-1/Bly/GST-ADJN/2024-25/T, which pertained to the financial year 2019-20.
Direction for Circular Benefit
The crucial prayer involved directing the authorities to grant the benefit of Circular No.183/15/2022-GST, which provided a systematic mechanism for rectifying errors in invoices and statutory forms.
Withdrawal of Constitutional Challenge
At the commencement of the hearing, the counsel representing the assessee made an important submission before the Court. The prayer challenging the constitutional validity of Section 16(2)(c) of the CGST/SGST Acts was formally withdrawn and not pressed before the judicial forum.
This strategic decision allowed the Court to focus on the substantive issue concerning the applicability and scope of the rectification circulars rather than engaging in a prolonged constitutional adjudication.
Contentions by the Assessee
The assessee's counsel placed strong reliance on Circular No.183/15/2022-GST dated 27.12.2022, which establishes a comprehensive mechanism for taxpayers to rectify errors committed in invoices or statutory forms. The circular provides a procedural framework that allows assessees to correct mistakes without facing punitive consequences, subject to certain conditions and timelines.
The counsel drew the Court's attention to a precedent established by a Co-ordinate Bench in the case of W.P. No.16175 of 2022 dated 06.01.2023. In that decision, the Karnataka High Court had adopted a justice-oriented approach and extended the benefit of Circular No.183/15/2022-GST to the financial year 2019-20, even though the circular explicitly mentioned only the financial years 2017-18 and 2018-19.
The assessee argued that where identical errors exist across multiple assessment years, the denial of the circular's benefit solely on the ground that it expressly refers to earlier years would be arbitrary and unjust. The principles of equity and fairness demanded that similarly situated taxpayers facing similar issues should receive similar treatment.
Opposition by Revenue Authorities
The respondents, represented by the Additional Government Advocate, filed a statement of objections opposing the assessee's contentions. The revenue authorities argued for a strict interpretation of the circulars based on their express language.
According to the respondents, Circular No.183/15/2022-GST dated 27.12.2022 was specifically intended to apply only to the financial years 2017-18 and 2018-19. They contended that the circular's scope could not be expanded beyond the years explicitly mentioned in its text.
The revenue further pointed out that a subsequent circular had been issued to address later periods. Circular No.193/05/2023-GST dated 17.07.2023 was specifically designed to govern the period from 01.04.2019 to 31.12.2021. Therefore, according to the respondents, if the assessee's transaction pertained to financial year 2019-20, the applicable circular would be the 2023 circular rather than the 2022 circular.