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A Case of Bona Fide Mistake: Bombay High Court Quashes Order & Directs Correction of Inadvertent GST Entry Mistake

Introduction

The Bombay High Court (‘BHC’), in a recent ruling in the case of Unique Speciality Chemicals v. Deputy Commissioner of State Tax (E-103)[i], highlighted the importance of acknowledging genuine errors in the filing of electronic documents under the Goods and Services Tax (‘GST’) regime. In this case, the BHC examined a dispute concerning a substantial tax demand arising from an inadvertent error in an E-way bill. This judgment emphasizes the judiciary’s approach to rectifying bona fide mistakes and ensures that punitive measures do not disproportionately affect businesses for minor, non-fraudulent errors.

Brief Facts

  • Unique Speciality Chemicals (‘petitioner’) filed a petition under a. 226 of the Constitution of India seeking several reliefs, including the quashing of an order dated 29.07.2022. The petitioner had erroneously entered the wrong Harmonized System of Nomenclature (‘HSN’) code in the ‘Taxable Value’ (‘TV’) column of an E-way bill, leading to the system calculating a GST amount significantly higher than what was due.

  • The actual TV of the goods was Rs. 3,081.60, but due to the said error, the system calculated the GST as Rs. 61,28,836.20, making the tax demand 1817 times greater than the correct amount.

  • Upon realizing the mistake, the petitioner sought to rectify the error and provided all necessary documents to the tax authorities. However, their efforts were dismissed, and the impugned order was passed recording discrepancies without considering the petitioner’s submissions.

  • The petitioner relied on previous judicial precedent, specifically the decision in Star Engineers (I) Pvt. Ltd. v. Union of India and Ors.[ii], to argue that genuine administrative mistakes should be correctable without undue penalty, particularly when there is no loss of revenue to the department.

Held

  • The BHC quashed the impugned order and directed the petitioner to approach the tax department to correct the error within three weeks. Further, the tax department was instructed to accept the corrections and consider the petitioner’s returns in accordance with the law.

  • The BHC emphasized that genuine errors should be correctable, especially when they do not affect the tax department’s revenue and acknowledged the error as a clear, inadvertent mistake, noting there was no intention to evade tax and no loss of revenue to the tax department. While referring to the legal principles established in the case of Star Engineers (supra), the BHC stressed the need to rectify bona fide mistakes without causing revenue loss to the tax department.

Analysis

This judgment sheds light on the judiciary’s role in addressing disputes arising from the digitalization of tax compliance mechanisms, such as E-way bills under the GST framework. By providing relief to the petitioner, the BHC has not only reinforced the principle that the law should serve as a tool for revenue collection but also ensure fairness and justice in its application. This decision sets a precedent for similar cases, indicating that tax authorities must consider the context and intent behind discrepancies in tax documents. Moreover, it highlights the importance of procedural flexibility to rectify genuine mistakes, ensuring that businesses are not unduly penalized for non-fraudulent errors. This ruling is a testament to the judiciary’s balanced approach, safeguarding the interests of both the tax department and compliance on the part of the taxpayers, thereby fostering an equitable tax administration system.


End Notes:

[i] Writ Petition (Civil) No. 88 of 2023, dated 30.01.2024.

[ii] 2023 SCC OnLine Bom 2682


Authored by Srishty Jaura & Preethi Suresh, Associates at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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