Manissery Jayachandran Vs Union of India
Date: January 23, 2025
Subject Matter
Credit Ledger should be considered a unified pool of funds and not compartmentalized by tax heads (CGST, SGST, IGST)
Summary
In the case of Manissery Jayachandran Vs. Union of India, the Kerala High Court set aside both the assessment order and the appellate order that denied the petitioner Input Tax Credit (ITC) claimed under different heads in the Electronic Credit Ledger (ECL). The court highlighted the principle that the ECL should be considered a unified pool of funds and not compartmentalized by tax heads (CGST, SGST, IGST). The petitioner, during the transitional phase from VAT to GST for the assessment year 2017-18, mistakenly claimed eligible ITC under various heads, leading to notices under Section 73 demanding the return of wrongly claimed ITC along with interest and penalties. The court referred to prior judicial precedents that indicated such compartmentalization did not constitute "wrong availing" of ITC and clarified that the credit utilization should be viewed holistically. The court therefore invalidated the previous orders, directing a re-evaluation of the case, which included quashing an associated demand notice.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
Petitioner challenges Exhibit-P14 order of assessment issued by the fifth respondent, apart from Exhibit-P15 order in appeal and the consequential demand made as per Exhibit-P16.
2. For the assessment year 2017-18, petitioner claims to have received various interstate inward supplies of goods as well as intrastate inward supplies. The eligible Input Tax Credit was, by mistake, claimed under different heads since the transaction related to the year of transition from Value Added Tax to Goods and Services Tax. Subsequently, notices were issued under Section 73 of the Central Goods and Services Tax Act, 2017, demanding the Input Tax Credit wrongly claimed under the head of IGST, apart from interest and penalty. The proceeding resulted in Exhibit-P14 since petitioner had wrongly availed ineligible Input Tax Credit. The challenge against the said order before the Appellate Authority was also declined, against which the present writ petition has been filed.
3. I have heard Sri. R. Jaikrishna, the learned counsel for the petitioner, as well as Smt. Jasmin M. M., the learned Government Pleader and Sri. V. Gireeshkumar, the learned Standing Counsel.
4. In the decision in Rejimon Padickapparambil Alex v. Union of India and Others[2024 KHC Online 7215], a Division Bench of this Court had observed that the electronic credit ledger is in the nature of a wallet with different compartments of Integrated Goods and Services Tax, Central Goods and Services Tax and State Goods and Services Tax and there cannot be any wrong availing of Input Tax Credit merely because a taxpayer had availed the benefit of credit of input tax available in one compartment under the other. It has also been observed, after referring to Circular No. 192/04/2023-GST that, the Input Tax Credit available in the electronic credit ledger should be considered as a pool of funds designated for different types of taxes, such as CGST, IGST and SGST. Relying upon the circular, it is also observed that for utilizing the IGST liability, the eligibility of the fund for payment is based on the total balance in the entire wallet and not just the IGST compartment. It is thereafter held that the GST system treats the electronic credit ledger as a unified resource, and interest is incurred if collectively the available funds fall below the amount of wrongly availed credit during the specified period.
5. The aforesaid proposition of law clarifies the legal scenario relating to the utilisation of Input Tax Credit under the different compartments available in the electronic credit ledger. The said proposition has a bearing in the instant case. However, since the assessing officer as well as the Appellate Authority has proceeded on the basis that such availment under any count is legally not justified, I am of the view that, the impugned orders are liable to be set aside and a reconsideration be directed.
6. Accordingly, the assessment order and the appellate order produced as Exhibit-P14 and Exhibit-P15 are set aside and the fifth respondent is directed to reconsider the matter afresh, in a time-bound manner, at any rate, within a period of three months from the date of receipt of a copy of this judgment. In consequence of the above direction, Exhibit-P16 demand notice shall also stand quashed.
The writ petition is allowed as above.