Ashok Drugs (Wholesale) Vs Deputy State Tax Officer
Date: October 14, 2025
Subject Matter
Wrong Adjustment of ITC Between Heads Does Not Attract Section 73 As There Is No Revenue Loss
Summary
The petitioner, a registered taxpayer, challenged an assessment order (Ext.P1) passed under Section 73 of the GST Act for the assessment year 2017-2018. The Revenue raised a demand based on the petitioner claiming ineligible Input Tax Credit (ITC).
The petitioner's specific defense was that, while filing GSTR 3B for January 2018, they inadvertently utilized IGST credit despite having no interstate sales. The petitioner argued that this was a case of wrong adjustment of credit between tax heads (CGST/SGST vs. IGST), which did not result in any revenue loss, and therefore, proceedings under Section 73 are incorrectly invoked.
The High Court allowed the writ petition and quashed the impugned order (Ext.P1).
Issue Covered by Precedent: The Court found that the issue is squarely covered in the petitioner's favor by the Division Bench judgment in Rejimon Padikapprambil Alex v. Union of India and Others.
No Revenue Loss: Citing the precedent, the Court held that Section 73 (Determination of tax not paid or short paid) is attracted only when tax has not been paid, short paid, or wrongfully availed/utilized, which implies a revenue loss.
Wrong Adjustment is Not Wrong Availment: If the case merely involves the adjustment of existing input credit in a different head (e.g., using IGST credit instead of CGST/SGST credit), but the underlying credit itself is available, no revenue loss is caused to the exchequer. Therefore, the proceedings under Section 73 were incorrectly initiated.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
This writ petition is submitted by the petitioner who is a registered tax payer under the provisions of the CGST/SGST Act. The challenge raised is against Ext.P1 order passed under Section 73 of the GST Act, pertaining to the assessment year 2017-2018 on the ground that the petitioner claimed ineligible input tax credit against CGST/SGST Acts.
2. Case of the petitioner is that, while supplying data in GSTR 3B for January, 2018, the petitioner inadvertently paid IGST input credit, despite the fact that the petitioner was not having any interstate sales. The specific case of the petitioner is that, the wrong application of input tax credit cannot be a ground to initiate proceedings under Section 73 of the CGST Act. Reliance was also placed on the decision rendered by a Division Bench of this Court in Rejimon Padikapprambil Alex v. Union of India and Others [2024 KHC Online 7215], wherein, this Court, after referring to the relevant statutory provisions, held that, the Section 73 can be attracted only when the tax has not been paid or short paid or erroneously refunded or where input tax has been wrongfully availed or utilized for any reason. If it is a case of adjustment of the input credit in a different head, the proceedings under Section 73 would not be attracted as there is no revenue loss caused.
3. After hearing the learned counsel for the petitioner and the learned Government Pleader, I find that the issue raised in this writ petition is squarely covered in favour of the petitioner as per the decision referred to above.
In such circumstances, this writ petition is only to be allowed. Accordingly, it is ordered that, Ext.P1 shall stand quashed in the light of the principles laid down by this Court in Rejimon Padikapprambil Alex (supra).