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Impact of Erroneous Reporting of Credit Notes on Tax Demands

20 Apr Impact of Erroneous Reporting of Credit Notes on Tax Demands

Posted at 04:37h in GST by
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Introduction

The recent ruling by the Hon’ble Madras High Court in the case of Oasys Cybernetics Private Limited v. State Tax Officer sheds light on the implications of erroneous reporting of credit notes and its ramifications on tax demands. Let’s delve into the intricacies of this case and its broader implications.

Facts of the Case

The case revolves around Oasys Cybernetics Private Limited (“the Petitioner”), a company engaged in supplying and installing point of sale machines in ration shops operated by Tamil Nadu Civil Supplies Corporation. The Petitioner received a show cause notice dated September 14, 2023, regarding a discrepancy between their GSTR 3B and auto-populated GSTR 2A. Despite filing a reply, an assessment order was issued against the Petitioner by the Revenue Department (“the Respondent”) on December 29, 2023.

Issue

The central issue pertains to whether a demand should be raised when negative taxable and invoice values arise due to the erroneous reporting of credit notes.

Held

The Hon’ble Madras High Court, in W.P. No. 9624 of 2024, delivered the following verdict:

  • Discrepancy Noted: Upon examining the GSTR-1 statement submitted by the Petitioner, the court observed that the total invoice value in the heading relating to B2C transactions was negative. The Petitioner contended that this anomaly stemmed from credit notes being erroneously reported as Input Tax Credit (ITC).
  • Lack of Consideration: The court highlighted that the explanation provided by the Petitioner, particularly regarding the reconciliation of ITC with the value of the credit note, was not duly considered. The absence of a thorough examination led to the unilateral imposition of tax demands.
  • Call for Interference: Critiquing the assessment order, the court emphasized that the tax demand was solely based on the alleged failure to report credit notes accurately. As such, the court deemed it necessary to set aside the impugned order and remit the matter for reconsideration.

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