Isabella Mariam

The High Court of Karnataka Single Bench of Justice S.R. Krishna Kumar set aside a departmental show-cause notice and related steps initiated against a registered taxpayer on the basis of mistakes in its GST filings and directed the tax authorities to accept the corrected returns and proceed afresh in accordance with law. The dispute arose after the taxpayer, having discovered bona fide reporting errors in its GSTR-3B/GSTR-1 for the relevant period, sought to rectify them, but the department treated the corrections as impermissible and invoked proceedings under Section 73 of the KGST/CGST Act. The Court held that genuine errors in GSTR-3B are rectifiable and cannot, by themselves, justify action under Section 73, noting the Supreme Court’s direction to the CBIC to revisit timelines for correcting such bona fide errors.

The writ petition was filed by a registered taxpayer challenging a show cause notice and audit proceedings initiated by the State tax authorities under the CGST/KGST framework. The dispute arose after the petitioner filed GST returns for the period July 2017 to March 2018 and later discovered errors in reporting outward supplies, where certain transactions were shown as B2B instead of B2C.

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The petitioner corrected these errors by amending the relevant returns. Despite such corrections, the tax authorities issued a show cause notice alleging that the petitioner was not entitled to make amendments beyond the prescribed period and proposed further proceedings. The petitioner contended that the corrections were bona fide, related to the initial phase of GST implementation, and did not result in any loss of revenue.

The respondents opposed the petition, asserting that statutory provisions restricted post-filing rectifications and that the notice was valid. The material on record included the original returns, amended returns, audit reports, and replies submitted by the petitioner, all of which formed the basis of the dispute.

The Court examined the record and noted that the petitioner had “subsequently realised that there was errors in the GSTR1 and what should have been declared as B2C instead of B2B and accordingly, made necessary corrections.” The Court observed that GST was introduced as a “major overhaul of the indirect tax regime” and that dealers required time to adapt to new formats and systems. It recorded that the errors occurred “during the very first financial year after the introduction of GST” and that the returns demonstrated the “innocuousness of the errors committed.”

The Court stated that the errors were “entirely bona fide and inadvertent” and that a “lenient view is required to be taken, particularly since the tax periods involved relate to the very first year of the GST regime.” It further observed that reliance placed by the revenue on earlier precedent was misplaced, recording that “the facts of the present case are entirely different” and that permitting correction would not result in any cascading effect or revenue loss.

The Court also recorded that authorities must avoid a “blinkered view while adjudicating/assessing the tax liability” and should consider material beyond the returns alone. Referring to consistent views taken by several High Courts and confirmed by the Supreme Court, the Court noted that “human errors and mistakes are normal” and that the “right to correct mistakes in the nature of clerical or arithmetical error is a right that flows from right to do business.” On this reasoning, the Court found that initiation of proceedings solely on the ground that corrections were made was unsustainable.

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The Court ordered that “the writ petition is allowed. The impugned notice at Annexure-A1 dated 04.11.2022 and all further proceedings pursuant thereto are hereby quashed. The respondents are directed to accept the returns filed by the petitioner together with necessary corrections and proceed further in accordance with law.”

Advocates Representing the Parties

For the Petitioners: Sri Bharat B. Raichandani, Advocate
For the Respondents: Sri Prathibha, CGC; Sri K. Hema Kumar, AGA.

Case Title: Hindustan Construction Company Ltd. v. Union of India & Others
Neutral Citation: NC: 2025: KHC:50282
Case Number: Writ Petition No. 22377 of 2022
Bench: Justice S.R. Krishna Kumar