Facts of the Case:

In this case, petitioners were the purchasers of motor vehicles against which they had availed input tax credit (ITC) on the basis of tax invoices duly issued by the vendor. Subsequently, vendor issued credit notes to the petitioners towards post-sale discounts under a sales scheme. Correspondingly, the petitioners issued debit notes of equivalent value to the vendor and admitted and discharged GST liability on such debit notes by reflecting the same in their GSTR-1 and GSTR-3B returns. Thus, in substance, the petitioners had effectively reversed the ITC attributable to the discounts, albeit through payment of tax on debit notes instead of reduction of ITC through credit note matching in the GST portal. However, due to the technical design of the GST portal, debit notes issued by buyers were not factored into the auto-matching mechanism, resulting in a mismatch in Form GSTR-2A and triggering proceedings by the department.

During inspection, the authorities allegedly coerced the petitioners to reverse ITC amounting to ₹10,99,06,850/- and to file Form DRC-03. Thereafter, a show cause notice dated 06.10.2023 was issued proposing reversal of ITC of ₹34,26,33,614/-, while simultaneously proposing appropriation of output tax already paid by the petitioners amounting to ₹42,75,68,473/-, which exceeded the proposed reversal. Despite this, the Additional Commissioner passed an order dated 26.12.2023 refusing appropriation and holding that the petitioners ought to have claimed refund of tax paid on debit notes.

The Petitioners aggrieved approached the High Court seeking refund/re-credit and permission to rectify GST returns, contending that the entire exercise was revenue-neutral and arose purely from inadvertent and bona fide errors in return filing.

Issue:

Whether the GST authorities were justified in denying rectification/amendment of Forms GSTR-1 and GSTR-3B and in confirming demand/reversal of ITC, despite the error being bona fide, revenue-neutral, and resulting in no loss to the exchequer, merely on the ground of technical limitations of the GST portal and expiry of statutory timelines.

Held that:

The Court held that a purposive and pragmatic interpretation of Sections 37, 38, and 39 of the CGST/GGST Acts is required. The statutory provisions permitting rectification of errors cannot be rendered otiose merely due to procedural or technical constraints of the electronic GST system, especially where the error is bona fide and inadvertent, there is no allegation of fraud or undue gain, and no loss of revenue is caused to the Government.

The Court placed reliance on the judgments of the Bombay High Court in Star Engineers (I) Pvt. Ltd. and Aberdare Technologies Pvt. Ltd., wherein the courts reiterated that technicalities of the GST portal cannot override substantive justice. The provisos to Sections 37(3) and 39(9) cannot be interpreted so rigidly as to defeat the legislative intent of ensuring accurate tax reporting.

The Court noted that, in the present case, the petitioners had paid output tax exceeding the ITC sought to be reversed, and even if the department’s legal interpretation were accepted, the situation remained revenue-neutral. The authorities themselves were unable to dispute that permitting rectification would cause no prejudice to revenue.

Accordingly, the Court directed the respondents to open the GST portal to enable the petitioners to amend/rectify Forms GSTR-1 and GSTR-3B within a stipulated period. In the alternative, liberty was granted to the petitioners to file manual rectification applications, which the authorities were directed to process in accordance with law. Consequentially, the show cause notice was held not to survive. The Court allowed the writ petitions and quashed the impugned order holding that the action of the authorities was unsustainable in law.

Case Name: Shree Ambica Auto Sales And Service & Anr. Versus Union Bank of India & Anr. dated 08.01.2026