It's a subjunctive, triggered by the phrase "It's time...". If you look this up in your grammar book, you'll find lots of examples, e.g: It's time we left. It's time you went to bed.

The verb return is used in past participle, since the verb is regular you can not notice the chance of the verb, Return Returned Returned, but you can't use "was + a verb in past" it doesn't make sense, you can't say "The food was ate" but you can say "the food was eaten", so, it is not in past but in past participle. Since the verb is regular is hard to notice, because it doesn't change like other verbs, Break, Run, etc. I don't know if this answers your question, I hope it helps.

I believe that the grammar is actually incorrect, although the sentence is commonly said that way. The sentence uses the subjunctive, and the correct structure is: It is time that it be returned to you. However the subjunctive mood is not often used in English (here in the U.S.) and native speakers frequently (mis)use the past tense when the subjunctive should be used. That is what seems to be happening here. One of the most common uses of the subjunctive in English is "If I *were* you I would do XYZ." You will often hear, "If I *was* you, I would do XYZ." "Was" is incorrect, in this construction, but you will hear it all the time, particularly in informal speaking.