Denial Of Input Tax Credit Recovery Based On An Inadvertent Cross-Utilisation Mistake Is Legally Unsustainable Because Intradepartmental Balances Do Not Constitute Tax Evasion
Issue
Whether the tax authorities are justified in passing a recovery order under Section 73 of the Kerala GST Act for the period April 2018 to March 2019, on the ground that the petitioner mistakenly cross-utilized and set off eligible Integrated Goods and Services Tax (IGST) input tax credit under the Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) heads against its output tax liability.
Facts
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Taxpayer Status: The petitioner is a registered taxpayer under the CGST/SGST legal framework.
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Accounting Error: During the financial period spanning April 2018 to March 2019, the petitioner inadvertently committed a typographical or clerical error by setting off its genuine, eligible IGST input tax credit under the CGST and SGST ledgers to discharge its final output tax liability.
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Impugned Order: The 5th Respondent passed an assessment and recovery order under Section 73 of the KSGST Act, treating this procedural ledger cross-utilization as a wrongful or short-payment of tax.
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Legal Challenge: The petitioner filed a Writ Petition before the High Court challenging the validity and legal sustainability of the recovery order.
Decision
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Held, In Favor of Assessee: The impugned recovery order passed under Section 73 is unsustainable and is hereby quashed.
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Precedent Binding: The legal controversy is squarely covered in favor of the taxpayer by the binding judicial precedent set in Rejimon Padikapparambil Alex v. UOI [2024].
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Administrative Remedy: The revenue department cannot penalize a taxpayer for ledger-clearing mismatches. The High Court clarified that the respondent State is at liberty to approach the GST Council to clear any inter-departmental monetary settlements or ledger re-allocations necessitated by this judgment.
Key Takeaways
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Procedural Error vs. Tax Evasion: A mistaken cross-utilization of validly accumulated IGST credit against CGST/SGST liabilities does not equate to tax evasion, short payment, or a fraudulent claim. Section 73 cannot be mechanically invoked for accounting adjustments where no revenue loss occurs to the exchequer as a whole.
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Revenue Neutrality: The fundamental nature of GST involves multi-jurisdictional credits. When the input credit is legally genuine, an error in choosing the specific tax head or ledger layout during a return filing is an administrative irregularity, not a substantive tax liability.
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GST Council Jurisdiction: Inter-governmental clearing houses and financial reconciliations between Central and State treasuries arising from cross-utilization errors are systemic backend issues to be resolved at the GST Council level, without putting the financial burden or penalty on a compliant taxpayer.