Golden Traders Vs Assistant State Tax Officer

FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT

The petitioner is a partnership firm engaged in the trading of plastic moulded chairs and watches, and is a registered taxpayer under the Central Goods & Services Tax Act, 2017 and Kerala State Goods & Services Tax Act, 2017. The grievance of the petitioner is against the demand under Section 73 of the CGST Act pertaining to the assessment year 2017-2018 issued by the 1st respondent.

2. Allegation based on which the proceedings referred to above were initiated was that, according to the 1^strespondent, there were certain irregularities on the part of the petitioner in availing input tax credit. According to the respondent, the petitioner availed excess input tax credit of Rs.1,29,906/. According to the petitioner, the same was the result of a mismatch while availing ITC under the wrong heads. Even though as against Ext.P1, an appeal was submitted under Section 107 of the CGST Act before the 2^ndrespondent, the same was rejected as per Ext.P2. This writ petition is submitted by the petitioner in such circumstances challenging Exts.P1 and P2.

3. The specific contention raised by the petitioner is that, since the discrepancy highlighted in the impugned orders pertains to the availing of ITC under wrong heads, the same cannot be a subject-matter under Section 73 of the GST Act and the position in this regard is made clear by the Division Bench of this Court in Ext.P3 judgment, i.e., Rejimon Padickapparambil Alex v. Union of India [W.A.No.54 of 2024]. In the said decision, the Division Bench of this Court after extracting an assessment order passed by Asst. Commissioner of Central Tax, East Division-6, Bengaluru while considering the same issue, it was observed as follows in paragraph No.7 thereof:

“23. Issue 2: Wrong availment of ITC as CGST (27,000/-) and SGST (27,000/-) instead of IGST -: During the course of verification and reconciliation of ITC register, it was noticed that the taxpayer had availed input tax credit of Rs.27,000/- as CGST and 27,000/- as SGST instead of IGST for a supply received from PIRANHA (27AARFP6159NIZ9), a service provider located in Maharashtra, vide invoice No.PC/19-20/01 dated 12.04.2019. It is alleged in the show cause notice that the ITC amounting to Rs.54,000/- [CGST:Rs.27,000/- & SGST:Rs.27,000/-] is inadmissible under the provisions of section 16 of CGST Act,2017.

24. The noticee in their written reply submitted that Section 77 of the CGST Act, 2017 deals with cases where tax has been paid under an incorrect head. This section outlines the provisions for refunding taxes paid under an incorrect head in situations where the nature of the transaction is subsequently determined to be different from what was initially considered. Since the legislation itself is allowing a refund of tax paid, they requested that ITC availed under the head CGST/SGST be adjusted with IGST.

25. Further the noticee argued that when the department is allowed to adjust the refund being claimed against any outstanding tax liability in accordance with rule 92(1A), this entire exercise proposed to levy tax in the SCN is revenue neutral and will only result in unnecessary utilization of resources of the revenue & yield nothing in return. Therefore, noticee lays stress on this process of adjustment and asserts that the amount remitted under one head can be adjusted under another head, for the demand can be any amount under the Act. The noticee submitted that they wish to rely on the Kerala High Court decision in the case of Saji S. Vs. Commissioner of State GST 2018 (19) GSTL 385 (KER) that allowed transfer and adjustment of amount from “SGST” to “IGST” and also held that it is inequitable for authorities to let the assessee suffer on account of any delay in transfer. Therefore, relying on the decision of Kerala High Court (Supra) tax paid wrongly under CGST and SGST should rightly be adjusted and no further recovery under IGST is legally sustainable.

26. I have examined Invoice No.PC/19-20/01 dated 12.04.2019, issued by PIRANHA (GSTIN27AARFP6159NIZ), a supplier situated in Maharashtra. The invoice specifies a taxable value of Rs.3,00,000/-, for which the supplier charged an Integrated Goods and Services Tax (IGST) of Rs.54,000/-.

The particulars of this invoice have been duly recorded in GSTR-1 and are reflected in the GSTR-2A of the noticee. However, the noticee has availed input tax credit amounting to Rs.27,000/- each under CGST and SGST, instead of IGST, in the month of April 2019 for a supply received from a service provider located in Maharashtra. In the instant case, there is no dispute regarding the eligibility of the input tax credit claimed by the noticee; but the allegation pertains to the noticee erroneously availing the input tax credit under incorrect heads, specifically CGST & SGST credit availed instead of IGST credit.

27. In accordance with Section 49(2) of the Goods and Services Tax (GST) Act, the input tax credit, as assessed by the registered person in their return, is credited to their electronic credit ledger. The utilization of the electronic credit ledger for discharging payments related to output tax is governed by the provisions outlined in Sections 49(4) and 49(5) of the GST Act. Section 49(4) and 49(5) is reproduced below;

Section 49(4): The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions 3 [and restrictions] within such time as may be prescribed.

Section 49(5) The amount of input tax credit available in the electronic credit ledger of the registered person on account of-

–(a) integrated tax shall first be utilised towards payment of integrated tax and the amount remaining, if any, may be utilised towards the payment of central tax and State tax, or as the case may be, Union territory tax, in that order;

(b) the central tax shall first be utilised towards payment of central tax and the amount remaining, if any, may be utilised towards the payment of integrated tax;

(c) the State tax shall first be utilised towards payment of State tax and the amount remaining, if any, may be utilised towards payment of integrated tax;

(d) the Union territory tax shall first be utilised towards payment of Union territory tax and the amount remaining, if any, may be utilised towards payment of integrated tax;

(e) the central tax shall not be utilised towards payment of State tax or Union territory tax; and

(f) the State tax or Union territory tax shall not be utilised towards payment of central tax.

28. Proviso to Section 49(5) ensures a clear and defined order of priority for utilizing input tax credits, preventing cross- utilization between different tax components. As delineated in the prescribed order of utilization, IGST credits are permissible for the settlement of liabilities arising from CGST and SGST, and conversely. The only restrictions are that central tax cannot be used for the payment of state tax or union territory tax, and vice versa. In the instant case, the noticee availed credit under CGST and SGST instead of IGST and utilised the same for payment of GST arising out of outward supplies. Therefore, based on the interpretation of Section 49(5) and the specific order of priority for utilizing input tax credits, the noticee’s actions are consistent with the legal framework.

29. CBIC vide Circular No.192/04/2023-GST dated 17th July 2023 had given clarification on charging of interest under section 50(3) of the CGST Act, 2017, in cases of wrong availment of IGST credit and reversal thereof. With respect to the calculation of interest under Rule 88B of the CGST Rules, it has been clarified in the above circular that “Since the amount of input tax credit available in electronic credit ledger, under any of the heads of IGST, CGST or SGST, can be utilized for payment of liability of IGST, it is the total input tax credit available in electronic credit ledger, under the heads of IGST, CGST and SGST taken together, that has to be considered for calculation of interest under rule 88B of CGST Rules and for determining as to whether the balance in the electronic credit ledger has fallen below the amount of wrongly availed input tax credit of IGST, and to what extent the balance in electronic credit ledger has fallen below the said amount of wrongly availed credit. Thus, in the cases where IGST credit has been wrongly availed and subsequently reversed on a certain date, there will not be any interest liability under sub-section (3) of section 50 of CGST Act if, during the time period starting from such availment and up to such reversal, the balance of input tax credit (ITC) in the electronic credit ledger, under the heads of IGST, CGST and SGST taken together, has never fallen below the amount of such wrongly availed ITC, even if available balance of IGST credit in electronic credit ledger individually falls below the amount of such wrongly availed IGST credit. However, when the balance of ITC, under the heads of IGST, CGST and SGST of electronic credit ledger taken together, falls below such wrongly availed amount of IGST credit, then it will amount to the utilization of such wrongly availed IGST credit and the extent of utilization will be the extent to which the total balance in electronic credit ledger under heads of IGST, CGST and SGST taken together falls below such amount of wrongly availed IGST credit, and will attract interest as per sub-section (3) of section 50 of CGST Act, read with section 20 of Integrated Goods and Services Tax Act, 2017 and sub-rule (3) of rule 88B of CGST Page 3 of 3 Rules.” 30. The essence of the above clarification is that the input tax credit (ITC) available in the electronic credit ledger should be considered as a pool of funds designated for different types of taxes, such IGST, CGST and SGST. These accounts represent a wallet with compartments for IGST, CGST, and SGST funds. Therefore, while determining interest under rule 88B of the CGST Rules, the entire wallet has to be taken into consideration, not just individual compartments. If the total balance (combining IGST, CGST, and SGST) falls below the amount of the wrongly availed IGST credit, there is interest liability. If, however, the total wallet balance never dips below this specific amount during the relevant period, there’s no interest liability. Similarly, for utilizing the IGST liability, the clarification emphasizes that the eligibility of funds for this payment is based on the total balance in the entire wallet, not just the IGST compartment. In short, the analogy of the above circular is 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.

31. I adopt the analogy of the above circular No.192/04/2023- GST dated 17th July 2023 in deciding this issue. In the instant case, there is no loss of revenue, either to the Centre or to any State, arising from the availment and utilization of CGST/SGST instead of IGST. In view of the above findings, I hold that the noticee is not liable to reverse the CGST (27,000/-) and SGST (27,000/-) availed instead of IGST through the GSTR 3B and the demand of Rs.54,000/- in the Show Cause Notice No. is liable to be dropped.”

8. We have deemed it appropriate to extract the above findings from the order of the Assistant Commissioner since we find that it not only represents the correct view of the procedural law in this regard, but more importantly, demonstrates that revenue officials, even at the level of Assistant Commissioner, who are often the first point of contact between an assessee and the revenue department, are capable of rendering timely and effective justice in our country which is known for its huge backlog of cases. At a time when the justice dispensation system is looking for ways and means to reduce litigation generally, and especially in the field of taxation where delays can affect the nation’s economy, orders such as the one extracted above come as a welcome breath of fresh air, and are to be duly appreciated and encouraged. It needs no gainsaying that an expeditious disposal of cases, especially those involving procedural aspects of taxation, is the need of the hour so as to ensure fairness and certainty in tax administration.”

4. In the light of the principles laid down by this Court in the aforesaid judgment, the impugned order needs to be reconsidered to find out whether the irregularities highlighted against the petitioner pertained to the availing of input tax credit under wrong heads.

In such circumstances, this writ petition is disposed of quashing Exts.P1 and P2 with a direction to the 1^st respondent to pass fresh orders, after giving the petitioner a reasonable opportunity of being heard. A decision in this regard shall be taken strictly by complying with the principles laid down in Ext.P3 judgment, within a period of three months from the date of receipt of a copy of this judgment.