The Calcutta High Court has delivered an important ruling providing relief to taxpayers who corrected earlier GST reporting errors through the annual return. The case revolved around non-disclosure of compensation cess in monthly GSTR-3B returns, which was later fully disclosed and rectified in the annual GSTR-9 return. The Court directed the GST authorities to reconsider the matter by duly acknowledging the disclosures and corrections made in the annual return, holding that late filing by itself cannot be treated as a legal bar when no penal consequence was prescribed during the relevant period.
Background of the Case and Nature of the Error
The applicants, engaged in the business of motor vehicle trading, had made purchases during FY 2017-18 and paid GST along with compensation cess on inward supplies. On outward supplies, compensation cess was collected from customers. However, due to an incorrect assumption that the inward cess credit would fully offset the outward cess liability, the cess was not disclosed in the monthly GSTR-3B returns. During the finalisation of accounts, the applicants realised the mistake and disclosed the entire cess amount in the annual return filed in Form GSTR-9, thereby correcting the omission and claiming revenue neutrality.
High Court’s Observations on GSTR-9 and ITC
The Single Bench of Justice Om Narayan Rai, in an order dated November 26, 2025, noted that the applicants had candidly disclosed the full cess liability in GSTR-9 after identifying the error during finalisation of books. The Court emphasised that non-consideration of the fact that Input Tax Credit on inward cess remained unavailed would violate constitutional principles, particularly Article 265, which mandates that tax can be collected only by authority of law. Ignoring the rectification made in GSTR-9 and the unavailed ITC would amount to an unjust enrichment of revenue.
Section 44(2) and the Issue of Late Filing
A key argument raised by the GST Department was that the disclosure in GSTR-9 was beyond the time limit prescribed under Section 44(2) of the CGST Act, 2017, as amended by the Finance Act, 2023. The High Court clarified that prior to the amendment effective from October 01, 2023, Section 44(2) merely prescribed a due date for filing annual returns and did not impose any fatal consequence or absolute prohibition on late filing. Since the applicants had filed GSTR-9 on August 28, 2023, the amended restriction was not applicable to their case. The Court categorically held that late filing during the earlier regime cannot be interpreted to completely preclude consideration of the return.
Show Cause Notice and Appellate Proceedings
Following departmental scrutiny, a Show Cause Notice was issued proposing recovery of compensation cess amounting to Rs 44,71,625, treating it as collected but not paid, along with interest and penalty under Section 74 of the CGST Act, 2017. The total liability, including penalty, was quantified at approximately Rs 1.28 crore. On appeal, the Appellate Authority accepted that there was no intent to evade tax and converted the proceedings from Section 74 to Section 73, thereby dropping the penalty. However, it failed to acknowledge the effect of the GSTR-9 disclosure and unavailed ITC, and sustained the tax demand.
| Particulars | Amount |
|---|---|
| Cess alleged as unpaid | Rs 44,71,625 |
| Total demand including interest and penalty | Approx. Rs 1.28 crore |
| Penalty under Section 74 | Dropped by Appellate Authority |
Revenue Neutrality and High Court’s Ruling
The applicants challenged the appellate order, contending that once the differential amount between cess collected on outward supplies and ITC available on inward cess was paid, the entire issue became revenue neutral. The High Court agreed with this contention and observed that the appellate authority erred in ignoring the disclosure made in GSTR-9 and the availability of unavailed ITC. Such an approach, according to the Court, defeats the very purpose of allowing annual returns as a corrective mechanism.
Effect of Finance Act, 2023 Amendment
The Court examined Section 44(2) both before and after its amendment by the Finance Act, 2023. It noted that the three-year limitation and the statutory prohibition on late filing were introduced only with effect from October 01, 2023. The amendment also contains enabling provisions allowing the government to permit late filing for specified classes of taxpayers under notified conditions. Since the applicants’ annual return was filed prior to the amendment’s effective date, the restrictive provisions could not be applied retrospectively.
Final Direction of the Court
Relying on earlier decisions of coordinate benches, including Ankit Kumar Agarwal, Bisweswar Midhya, and the Madras High Court ruling in Sri Shanmuga Hardwares, the Calcutta High Court set aside the appellate order. The matter was remanded back to the appellate authority with a direction to reconsider the appeal afresh, taking into account the GSTR-9 disclosure, the unavailed ITC on inward cess, and the principle of revenue neutrality. This judgment reinforces that procedural lapses corrected through statutory mechanisms like annual returns should not be disregarded, especially when no loss to revenue is established.