At the outset, we extend our sincere regards to your esteemed office for your continued efforts in shaping a taxpayer-friendly GST regime. Through this representation, we wish to bring to your kind attention the systemic challenges faced by taxpayers—particularly in relation to the denial of Input Tax Credit (ITC) arising from clerical or arithmetical errors in GST return filings—which are currently also under consideration by the Hon’ble Supreme Court in SLP (C) Diary No. 6334/2025.
I wish to humbly submit certain field-level concerns, particularly from the perspective of micro and small taxpayers under the GST regime. These observations are made based on my active engagement with taxpayers, especially MSMEs operating in rural and semi-urban sectors, where the compliance burden is exceptionally high compared to the resources at their disposal.
Ground Realities of the Taxpayer Segment:
- Most of the GST tax payers in India are MSME holders. In which most of them are micro largely managed by semi-literate women.
- All those tax payers are running their businesses on personnel loans, hand loans from relatives, working capital loans, term loans from Banks, Non-Banking Finance Corporations and other financial service providers etc.
- Most of the Business structures are sole proprietors and traditional partnership firms.
- As most of the persons running the business are not well educated and lack of knowledge on Finance and all other Acts relating to tax compliances and finance.
- Due to limited working capital and operational constraints, they are unable to afford professional expertise for handling complex tax system for better compliance. Consequently, many of them either self-file returns by learning through online resources or engage under-qualified petty munims. This leads to inadvertent errors while filing GSTR-1 and GSTR-3B Returns; not only GSTR-1 and GSTR-3B but also other Returns required to be filed under GST.
the above is just one example of issues facing by the MSME’s. However, their contribution to the states GDP is significantly high. and they are playing pivot role in job creation to the youth.
And when it comes to GST filings, it needs a skilled person to file their returns without any errors. and given the dynamic and evolving nature of GST law—with frequent amendments, notifications, and circulars—even tax officials at times may interpret provisions differently, which reflects the complexity of the legislation rather than any lapse in understanding”.
In such an environment, mistakes such as reporting excess outward supply, wrong GSTINs, or excess claim of ITC are inevitable.
Under the current legal framework, Section 37(3) and Section 39(9) of the CGST Act bar rectification of such errors beyond the earlier of the 30th day of November of the following financial year or the date of filing of the annual return under Section 44 for that financial year. This limitation, in many instances, cripples’ businesses that are otherwise tax-compliant and willing to rectify their genuine mistakes.
The brunt of such errors is often faced by the recipients, who are denied ITC on account of mismatches, even though the supply is genuine and tax is paid. This is in direct conflict with the objective of Section 16, which governs the entitlement to ITC.
And it is pertinent to note that till now i.e., 01-04-2025 there are 1155 number of Notifications from all categories. Apart from this there are many Circulars, Instructions and Orders. On an average 3 notifications are issued every week in all categories.
Leaving aside the thousands of judicial rulings, the sheer number of Sections, Rules, Notifications, and Departmental Orders under the GST law is itself undaunting, making return filing a complex task even for skilled professionals. Consequently, there remains a significant scope for inadvertent errors, despite the best efforts and care taken by the tax payers.
When it comes to the subject issue, sub section 3 of section 37 and sub section 9 of sec 39 curtail the right of correction of mistakes occurred in filing of GST returns. Further, due to the mistakes of supplier, buyer has to face the problem of claiming of ITC. It results in unjust denial of ITC, despite fulfillment of substantive conditions under section 16 of CGST Act. i.e. eligibility and conditions for claiming of Input tax credit.
Following are the various types of clerical or arithmetical errors in GST return filings:
1. Wrong reporting of Business-to-Business Supplies:
| Nature of Mistake | Description of Errors | Occurrence of Mistake in GSTR-1 | Occurrence of Mistake in GSTR-3B | Limitation with in which it has to be rectified | Rectification Required in | Is there any loss of revenue to the govt |
|---|---|---|---|---|---|---|
| Wrong Reporting of Business-to-Business Supplies | Instead of Reporting to one GSTIN reported to another GSTIN | In Table No.4A,4 B,6B &6C | No Effect, as the taxable Value and Tax components are given in summary level not Invoice wise. | 30th Nov of following Financial Year or Filing of Annual Return whichever is earlier Sec 37(3) | In GSTR-1, Table 4A,4B,6B &6C | No effect as the same is properly paid in GSTR-3B |
In the initial years of GST implementation, suppliers often reported supplies under the wrong GSTIN instead of the actual recipient. This resulted in denial of Input Tax Credit (ITC) to the rightful recipient. Such errors were not uncommon during the inception phase of GST.
At that time, recipients were permitted to claim ITC based on provisional ceilings of 120%, 110%, and 105% of eligible credit, as per Rule 36 (inserted via Notification No. 49/2019 – Central Tax dated 09.10.2019). Consequently, ITC may have been claimed without verifying whether the corresponding invoice was properly reflected in GSTR-2A.
Denial of ITC and the subsequent raising of demands on this ground leads to double taxation on the same supply (cascading effect), which contradicts the core objective of the Input Tax Credit mechanism.
2. Wrong reporting of Place of Supply:
| Nature of Mistake | Description of Errors | Occurrence of Mistake in GSTR-1 | Occurrence of Mistake in GSTR-3B | Limitation with in which it has to be rectified | Rectification Required in | Is there any loss of revenue to the govt |
|---|---|---|---|---|---|---|
| Wrong Reporting of Place of Supply in case of Business-to-Business Supplies | Wrong Selection of Place of Supply in case of Interstate Supply | In Table No.4A,4 B,6B &6C | No Effect, as under any case of Interstate supply one has to pay IGST only. | 30th Nov of following Financial Year or Filing of Annual Return whichever is earlier Sec 37(3) | In GSTR-1, Table 4A,4B,6B &6C | No effect as the same is properly paid in GSTR-3B |
In case of Interstate supply, Supplier may Choose wrong place of supply resulting in denial of ITC to the recipient on account of Place of supply.
Example:
Suppose Mr. X, situated in Telangana Sold goods to Mr. Y Gujarat, wrongly choose the place of supply as Karnataka results to denial of ITC in the hands of Mr. Y Gujarat.
Further, it leads to incorrect distribution of tax revenue to the wrong state than the actual state where the consumption took place.
Scenarios Where Such Errors May Occur:
- B2B Inter-State Supply – Wrong selection of POS (inter-State).
- B2B Intra-State Supply – Wrong classification as inter-State instead of intra-State.
- B2C Inter-State Supply – Wrong reporting of POS (inter-State).
- B2C Intra-State Supply – Incorrect reporting as inter-State supply.
3.Wrong reporting of Invoice Number or Date of Supply:
| Nature of Mistake | Description of Errors | Occurrence of Mistake in GSTR-1 | Occurrence of Mistake in GSTR-3B | Limitation with in which it has to be rectified | Rectification Required in | Is there any loss of revenue to the govt |
|---|---|---|---|---|---|---|
| Wrong Reporting of Invoice Number and Date of supply in case of Business-to-Business Supplies | Wrong feeding of Invoice Number or and date of supply in case of Business-to-Business Supply | In Table No.4A,4 B,6B &6C | No Effect | 30th Nov of following Financial Year or Filing of Annual Return whichever is earlier Sec 37(3) | In GSTR-1, Table 4A,4B,6B &6C | No effect as the same is properly paid in GSTR-3B |
In the above case, Supplier may wrongly mention the Invoice Number or/and Date of supply resulting to denial of ITC to the recipient on account of incorrect details.
4.Wrong reporting of Business-to-Business Supply’s as Business to consumers:
| Nature of Mistake | Description of Errors | Occurrence of Mistake in GSTR-1 | Occurrence of Mistake in GSTR-3B | Limitation with in which it has to be rectified | Rectification Required in | Is there any loss of revenue to the govt |
|---|---|---|---|---|---|---|
| Wrongly reporting of Business to Business as Business to Consumers | Since the reporting the B2B as B2C, No ITC could be passed on to the recipients GSTR-2B | In Table No.5 B2C (large) or Table 7 B2C (Others) | No Effect | 30th Nov of following Financial Year or Filing of Annual Return whichever is earlier Sec 37(3) | In Table No.5 B2C (large) or Table 7 B2C (Others) | No effect as the same is properly paid in GSTR-3B |
In the above case, Supplier may wrongly report the Business to Business as Business to Consumers resulting to denial of ITC to the recipient due to the absent of details of such supplies in his GSTR-2B.
“It is a settled principle of law that nemo debet puniri pro alieno delicto — no one should be punished for the fault of another. The recipient, having satisfied all substantive conditions under Section 16 of the CGST Act, 2017, must not be denied Input Tax Credit merely due to a supplier’s clerical error in reporting GSTIN in GSTR-1.”
Another perspective to consider is that, in effect, the disallowance of Input Tax Credit (ITC) by the tax authorities amounts to unjustly depriving the recipient of a rightful claim. Consequently, the burden of the disallowed ITC would inevitably shift to the recipient, who may seek recovery from the supplier. This not only disrupts the commercial relationship but also gives rise to unwarranted litigation between the supplier and the recipient, thereby causing avoidable hardship and legal entanglement.
5. Inadvertent error of Reporting of Notional figures in GSTR-3B:
| Nature of Mistake | Description of Errors | Occurrence of Mistake in GSTR-1 | Occurrence of Mistake in GSTR-3B | Limitation with in which it has to be rectified | Rectification Required in | Is there any loss of revenue to the govt |
|---|---|---|---|---|---|---|
| Reporting of Notional figures of output tax and input tax inadvertently I GSTR-3B | Reporting of Notional Figures in GSTR-3B without any supply | No Effect | Table 3 and Table 4 | 30th Nov of following Financial Year or Filing of Annual Return whichever is earlier Sec 37(3) | Table 3 and Table 4 | No Tax liability in the absence of supply. |
This type of error typically arises among taxpayers who lack a clear understanding of fundamental financial documents such as tax invoices, sales quotations, purchase invoices, and purchase orders. In many cases, sales quotations or purchase orders are mistakenly treated as actual invoices, leading to incorrect reporting of notional figures in GSTR-3B. As a result, tax liability and ITC are reported and discharged even in the absence of any actual supply, giving rise to unnecessary compliance complications. |
Explanation to Table No.5 i.e., Inadvertent error of Reporting of Notional figures in GSTR-3B:
Lex non cogit ad impossibilia” – The law does not compel a person to do the impossible.
This type of error typically arises among taxpayers who lack clear understanding of fundamental financial documents such as tax invoices, sales quotations, purchase invoices, and purchase orders. In many such cases, sales quotations or purchase orders are mistakenly treated as actual invoices, leading to the reporting of notional figures in GSTR-3B, even in the absence of actual supply or purchase transactions. These errors are especially common among small or newly established businesses, where return filing is often done by the taxpayers themselves—learning through self-help platforms like Google or YouTube—or through underqualified intermediaries.
Practical Case Study:
In March, Mr. X had no business activity—neither sales nor purchases—and accordingly filed a NIL GSTR-1. However, while filing GSTR-3B for the same period, he inadvertently reported notional outward taxable supplies of ₹10,00,000 and a corresponding tax liability of ₹1,80,000, which he discharged by erroneously claiming input tax credit of ₹1,80,000. In reality, there was no actual supply and no eligible ITC.
Upon discovering the mistake, the only option available to Mr. X was to rectify the error by adjusting the excess tax liability and reversing the wrongly claimed ITC in accordance with Sections 37(3) and 39(9) of the CGST Act, in subsequent months. However, since the mistake occurred in March, the window for such rectification is limited to April to November of the following financial year or until the filing of the annual return, whichever is earlier.
If Mr. X have no business activity in that rectification window, he would not be able to make the necessary adjustments, as there would be no outward supply to adjust the excess liability against, and no fresh ITC to reverse the earlier claim. This results in a compliance deadlock, despite the fact that there is no revenue loss to the Government. Such situations were most commonly observed during the COVID-19 pandemic.
Such a scenario is a textbook case of lex non cogit ad impossibilia, where the law, in its present form, expects the taxpayer to perform an act that is practically impossible.
“As evident from the above illustrations, the errors are neither grave nor detrimental to Government revenue. It would be just and fair to treat such genuine errors with appropriate consideration—particularly in cases where there is no loss of tax to the exchequer.”
Rectification, of clerical or arithmetical errors in GSTR-3B after the due date specified under section 39(9), through the DRC-03:
Apart from the above, the following are the clerical or arithmetical errors which could be rectified after the limitation period specified under subsection 9 of section 39:
| Instance | GSTR-1 | GSTR-3B | Rectification with in time limit u/s 37/39 | Correction after the time limit u/s 37/39 |
|---|---|---|---|---|
| Under Valuation of Outward Supplies | Reduced value of tax liability reported and transferred to the recipient | Reduced amount of tax paid on undervalued supplies | Can be rectified through monthly returns. | Can be corrected through Payment of tax by filing DRC-03 |
| Under Payment of tax | Tax liability is properly Reported | Tax Liability is short reported and short paid | Can be rectified through Monthly returns | Can be corrected through Payment of tax by filing DRC-03 |
| Excess Claim of ITC | Not Applicable | Excess utilisation of ITC | Can be reversed in Table 4(B)(2) of GSTR-3B | Can be corrected through Payment of tax by filing DRC-03 |
However, the case mentioned in Table 5 above stands as an exception to the aforesaid discussion on rectification of clerical or arithmetical errors in GSTR-3B return filings after the due date through DRC-03. It gives rise to a situation of lex non cogit ad impossibilia—the law does not compel a person to do the impossible
Implications on Fiscal Federalism Due to Errors in Place of Supply:
As per Section 17(2) of the IGST Act, the State portion of Integrated GST collected by the Central Government is required to be apportioned to the consuming State—i.e., the State where the supply actually takes place.
However, in cases where the place of supply is inadvertently reported incorrectly, and there exists no provision to rectify such error beyond the time limit under Sections 37(3), the resultant distribution of tax revenue may be allocated to an incorrect State. This not only undermines the intent of Section 17(2) of IGST Act, 2017 but also leads to fiscal imbalances between States.
According to the Interim Budget 2024-25, for every rupee in the government treasury, 63 paise comes from direct and indirect taxes, and 18 paise is contributed by GST alone—making it the single largest component of indirect tax revenue.
The GST framework was designed to promote cooperative federalism through harmonization of State and Central taxes, ensuring equitable distribution and seamless credit flow. However, continued disparities in the allocation of funds—due to systemic limitations on error rectification—raise concerns about fairness, efficiency, and the fiscal autonomy of States.
Therefore, it becomes all the more essential to provide taxpayers with an opportunity to rectify such clerical or arithmetical mistakes to ensure that tax revenues are distributed to the rightful States, aligning with the spirit of cooperative federalism and constitutional equity.
“In view of these broader constitutional and economic implications, it becomes even more relevant to examine how other tax laws, such as the Income Tax Act, provide a more flexible framework for correcting errors—offering valuable lessons for similar reforms under GST”.
Income Tax Act – A Comparative Relief mechanism:
Under the Income Tax Act, the Government has provided various avenues for rectification and correction through:
- The form of late filing of return under sub section (4) of section 139,
- Revision of return under sub section (5) of section139, and when it comes to the Revision of income tax return there is no restriction on the number of revisions.
- Filing of return against the defective return filed under sub section 5 of section 139 and
- Filing of updated return under sub section (8A) of section 139.
- Even one can able to file the return after catch up by the income tax department against to the proceeding’s u/s 142.
- Further, if any one missed to file the Income Tax return before the due date specified under sub section (1) of section 139 or sub section (4) of section 139 or failed to file the return under sub section 9 of section 139, can able to file the Updated Return by filing a nominal late fee under sub section 8A of Section 139.
“No similar recourse exists in GST, despite its technological interface and high compliance requirements. Sober administration is essential whenever a new taxation system is introduced till the stake holders get used to it.”
Need for a Special Rectification Mechanism under GST:
In order to remove these difficulties, there is an immense need to introduce a special procedures or mechanism to correct those errors, rectification of which requires beyond the time limit specified in sub section (3) of section 37 and sub section (9) of section 39 of CGST Act.
As observed in the recent Supreme Court order dated 24.03.2025, this issue is a systemic concern, and not an isolated anomaly. The Hon’ble Court’s direction to CBIC is indeed welcome, and we urge the formulation of a special procedure under Section 148 of CGST Act or via suitable amendment, enabling:
- Rectification of bona fide errors beyond the statutory limits,
- Submission of justifications with documentary proof,
- Safeguards to prevent misuse (such as one-time declarations, professional certifications, etc.).