The Hon’ble Gauhati High Court (Kohima Bench) in M/s ITI Ltd. v. Union of India & Ors. [WP(C)/150/2024 dated March 20, 2026] set aside the order dated April 30, 2024 passed by the Assistant Commissioner, Central Goods and Services Tax (CGST), Dimapur Division under Section 73 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) for Financial Year 2018–19 on two grounds: (i) that the mismatch between GSTR-1 and GSTR-3B arising from bona fide clerical errors cannot be mechanically treated as “self-assessed tax” under the Explanation to Section 75(12) of the CGST Act without following the due process prescribed under Rule 88C of the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”); and (ii) that the denial of Input Tax Credit (“ITC”) on the ground of limitation under Section 16(4) of the CGST Act, stands overridden by the retrospective insertion of Section 16(5) vide the Finance (No. 2) Act, 2024.
Facts:
The Petitioner, M/s ITI Ltd., having its principal place of business at Dimapur, Nagaland, is engaged in the supply of goods and is a registered taxpayer under the CGST Act. For the Financial Year 2018–19, the Petitioner, while filing its GSTR-1 (statement of outward supplies), inadvertently reported the rate of tax as 18% against four invoices, whereas the actual applicable rate under the statute was 12%. Additionally, a credit note was wrongly reflected in GSTR-1. However, the correct details, i.e., the tax rate of 12% against the four invoices and the appropriate credit note adjustment, were duly reported in GSTR-3B filed under Section 39 of the CGST Act and were further reconciled in the Annual Return GSTR-9. The Petitioner had not rectified the GSTR-1 within the period permissible under Section 37(3) of the CGST Act.
The Respondent No. 7 (Assistant Commissioner, CGST, Dimapur Division) without issuing any intimation to the Petitioner as required under Rule 88C of the CGST Rules, and without affording any opportunity to explain the aforesaid discrepancy, directly invoked the Explanation to Section 75(12) of the CGST Act (inserted with effect from January 01, 2022) and treated the higher liability reflected in GSTR-1 as “admitted self-assessed tax,” thereby raising a demand for the differential amount along with interest. Separately, the Respondent No. 7 also denied the Petitioner’s claim for ITC on the ground that the GSTR-3B for the month of March 2019 was filed on March 13, 2021, which was beyond the due date prescribed under Section 16(4) of the CGST Act for availment of ITC.
Issues:
- Whether a mismatch between GSTR-1 and GSTR-3B arising solely on account of bona fide clerical or arithmetical errors can be mechanically treated as “self-assessed tax” under the Explanation to Section 75(12) of the CGST Act, thereby enabling direct recovery under Section 79 without following the intimation procedure prescribed under Rule 88C of the CGST Rules?
- Whether tax can be levied and recovered at a rate (18%) higher than the rate actually prescribed under law and applicable to the transaction (12%), merely on account of an erroneous disclosure in GSTR-1?
- Whether the denial of ITC on account of late filing of GSTR-3B return for March 2019 under Section 16(4) of the CGST Act is sustainable in light of the retrospective insertion of Section 16(5) vide the Finance (No. 2) Act, 2024?
Held:
The Hon’ble Gauhati High Court in WP(C)/150/2024 held as under:
- Observed that, the mismatch between GSTR-1 and GSTR-3B arose on account of a bona fide human error committed by the Petitioner, wherein the tax rate was inadvertently mentioned as 18% against four invoices in GSTR-1, while the correct rate of 12% was duly reflected in the GSTR-3B, the actual invoices, and the Annual Return GSTR-9.
- Noted that, Rule 88C of the CGST Rules mandates that where there is a discrepancy between GSTR-1 and GSTR-3B, the proper officer is required to issue an intimation in Form GST DRC-01B, affording the registered person an opportunity to either pay the differential tax liability or submit an explanation for the mismatch. The Respondent No. 7, in complete disregard of this mandatory procedural requirement, proceeded to impose tax liability directly on the basis of GSTR-1 without issuing any such intimation, thereby violating the principles of natural justice.
- Held that, relying upon the judgment of the Hon’ble Supreme Court in Central Board of Indirect Taxes and Customs v. M/s. Aberdare Technologies Private Limited & Ors. [2025 (4) TMI 101], rectification of bona fide errors in GSTR-1 ought to be permitted, and that the correct tax rate as declared in GSTR-3B and the actual invoices (i.e., 12%) must prevail over the erroneous disclosure of 18% in GSTR-1. It was further held that tax can be levied and recovered only at the rate prescribed under law and actually applicable to the transaction, and recovery at a rate higher than the statutory rate is impermissible.
- Held that, the denial of ITC for the month of March 2019 on account of late filing of GSTR-3B is not sustainable in view of the retrospective insertion of Section 16(5) vide the Finance (No. 2) Act, 2024 (notified vide Notification No. 17/2024-CT dated September 27, 2024, with effect from July 01, 2017), which expressly enables registered persons to avail ITC in respect of invoices or debit notes pertaining to Financial Years 2017–18 to 2020–21 in any return filed under Section 39 up to November 30, 2021. Since the Petitioner had filed the return for March 2019 on March 13, 2021, i.e., well within the extended period stipulated under Section 16(5), the denial of ITC is not legally sustainable.
- Directed that, the impugned order dated April 30, 2024 is set aside and quashed. The Petitioner is granted thirty (30) days from the date of the order (excluding the period during which the writ petition was pending, i.e., from August 02, 2024 to March 20, 2026) to furnish an explanation along with supporting materials before the Respondent No. 7 in respect of the GSTR-1/GSTR-3B mismatch. The Respondent No. 7 shall decide upon the acceptability of such explanation in accordance with the provisions of the CGST Act and the CGST Rules. The Petitioner’s claim for ITC for Financial Year 2018–19 is held to be valid and admissible under Section 16(5) of the CGST Act.
Our Comments:
[A] Relevant Statutory Provisions:
- Section 37 of the CGST Act requires every registered person (other than certain specified categories) to furnish details of outward supplies electronically in GSTR-1 on or before the 10th day of the succeeding month. Sub-section (3) of Section 37 permits rectification of errors or omissions discovered in GSTR-1; however, the first proviso thereunder bars such rectification after the 30th day of November following the end of the financial year to which such details pertain or the date of filing of the annual return, whichever is earlier.
- Section 39 of the CGST Act mandates every registered person to furnish a return in GSTR-3B for every calendar month (or quarter, as applicable), disclosing the details of outward and inward supplies, tax payable, tax paid, and other prescribed particulars.
- Section 75(12) of the CGST Act provides that where any amount of self-assessed tax in accordance with a return furnished under Section 39 remains unpaid, the same may be recovered directly under Section 79 of the CGST Act without following the adjudicatory procedure under Sections 73, 74 or 74A. The Explanation inserted with effect from January 01, 2022 expands the definition of “self-assessed tax” to include the tax payable in respect of details of outward supplies furnished under Section 37 but not included in the return furnished under Section 39 (i.e., the differential between GSTR-1 and GSTR-3B).
- Rule 88C of the CGST Rules, 2017 (inserted vide Notification No. 26/2022-CT dated December 26, 2022) prescribes the procedure to be followed when there is a discrepancy between the liability reported in GSTR-1 and that reported in GSTR-3B. The Rule mandates that an intimation in Form GST DRC-01B be issued to the registered person on the common portal, calling upon the registered person to either pay the differential tax liability or submit an explanation for the discrepancy within a prescribed period. Where neither payment is made nor any explanation is furnished, or where the explanation is not found acceptable, recovery may be initiated under Section 79 of the CGST Act.
- Section 16(4) of the CGST Act prescribed that a registered person shall not be entitled to take ITC in respect of any invoice or debit note for supply of goods or services after the due date of furnishing the return for the month of September following the end of the financial year to which such invoice pertains, or furnishing of the relevant annual return, whichever is earlier. The said provision created a hard time bar for availing ITC, which adversely impacted taxpayers who, on account of system-related or other genuine difficulties, filed their returns belatedly.
- Section 16(5) of the CGST Act was inserted by the Finance (No. 2) Act, 2024 with retrospective effect from July 01, 2017. It provides that notwithstanding anything contained in Section 16(4), in respect of invoices or debit notes pertaining to Financial Years 2017–18, 2018–19, 2019–20 and 2020–21, a registered person shall be entitled to avail ITC in any return filed under Section 39 up to November 30, 2021. This provision effectively grants amnesty to taxpayers who had filed belated returns during the initial years of GST implementation.
[B] Significance of the Decision:
This decision is significant for the following reasons:
- It firmly establishes that the Explanation to Section 75(12) of the CGST Act cannot be mechanically invoked to treat every GSTR-1/GSTR-3B discrepancy as “self-assessed tax” without first following the mandatory procedure under Rule 88C. The procedure of issuing DRC-01B is a jurisdictional prerequisite and not a mere formality.
- It reaffirms the fundamental principle of taxation that tax can be levied and recovered only at the rate prescribed under law and actually applicable to the transaction. Erroneous reporting in GSTR-1 cannot override the statutory rate applicable to a supply.
- It lends judicial recognition to Section 16(5) and clarifies that the retrospective amendment effectively overrides any demand raised on account of belated filing of returns during Financial Years 2017–18 to 2020–21, provided the returns were filed on or before November 30, 2021.
- It underscores the principle settled by the Hon’ble Supreme Court in Central Board of Indirect Taxes and Customs v. M/s. Aberdare Technologies Private Limited & Ors. [2025 (4) TMI 101] that the right to correct bona fide clerical or arithmetical errors in statutory returns flows from the right to carry on business, and software limitations or procedural constraints cannot be a justification for denying such correction.
[C] Brief of Pari Materia Judgments
- Supreme Court – Central Board of Indirect Taxes and Customs v. M/s. Aberdare Technologies Private Limited & Ors. [2025 (4) TMI 101]: The Supreme Court dismissed the Revenue’s challenge to the Bombay High Court’s order permitting rectification of GSTR-1. It observed that the right to correct bona fide errors in returns is a right that flows from the right to do business, and that software limitations cannot be a good justification for denying correction. The Supreme Court further directed the CBIC to re-examine the provisions and timelines for correcting such bona fide errors.
- Madras High Court – Principal Chief Commissioner of GST and Central Excise v. Deepa Traders [2025 (4) TMI 1009]: Following the Supreme Court’s ruling in Aberdare Technologies, the Madras High Court held that errors in GSTR-1 are capable of being corrected where they arise on account of bona fide mistakes, and that the proper officer ought to seek an explanation from the taxpayer rather than mechanically rejecting the GSTR-3B on account of a discrepancy with GSTR-1.
- Calcutta High Court – Kuddus Ali v. State of West Bengal [WPA 6004 of 2025]: The Calcutta High Court had set aside recourse to Section 75(12) in the absence of a genuine discrepancy between GSTR-1 and GSTR-3B, holding that recovery proceedings initiated by circumventing the adjudicatory mechanism under Sections 73/74 of the CGST Act are unsustainable.
- Andhra Pradesh High Court – Sona Enterprises v. State of Andhra Pradesh [WRIT PETITION NO: 15151/2023] : The Andhra Pradesh High Court held that recovery under Section 75(12) without an adjudicatory order is permissible only in cases of admitted return mismatches and cannot be resorted to where the discrepancy is disputed or arises on account of a genuine error.
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