GST Demand for Wrongful ITC Availment Set Aside: Technical Error in Claiming CGST/SGST Instead of IGST

Summary in Key Points:

Issue: Was the demand for wrongly availed Input Tax Credit (ITC) justified when the assessee claimed eligible IGST credit under CGST/SGST instead of IGST?
Facts: The revenue authorities imposed a demand, interest, and penalty under Section 73 for the financial year 2017-18, alleging wrongful availment of ITC. The assessee had claimed eligible IGST credit under CGST and SGST instead of IGST.
Decision: The court held that the electronic credit ledger is a unified wallet with compartments for different taxes. A technical error in claiming IGST credit as CGST/SGST does not amount to wrongful availment when eligible IGST credit was available in the ledger. As there was no loss of revenue, the appellate order was set aside, and the matter was remanded for reconsideration in light of this principle.

Important Note: This decision clarifies that technical errors in claiming ITC under the wrong tax head (CGST/SGST instead of IGST) should not lead to penalties or demands, especially when the ITC was eligible and available in the electronic credit ledger. This approach recognizes the fungible nature of the electronic credit ledger and prevents undue hardship on taxpayers due to minor procedural errors. The ruling emphasizes that the focus should be on actual tax evasion or wrongful availment, not on technicalities that do not result in revenue loss.

HIGH COURT OF KERALA

Kalleppuram Metals

Union of India

Bechu Kurian Thomas, J.

WP(C) NO. 41980 OF 2024

DECEMBER 9, 2024

Karthika Maria, Anil Sebastian Pulickel, Arun Thomas, Shinto Mathew Abraham, Joe S. Adhikaram, Mathew Nevin Thomas, Veena Raveendran, Leah Rachel Ninan, Anjaly Elias, Shyni William, Navya Seby and Kurian Antony Mathew, Advs. for the Petitioner. Dr. Thushara James, Sr. Govt. Pleader and V. Girishkumar, SC for the Respondent.

JUDGMENT

1. The challenge raised in this writ petition is against the order of the Appellate Authority confirming the findings of the Adjudicating Authority regarding the wrong cross availment of input tax credit by the petitioner. The impugned order confirmed the penalty and interest imposed on the petitioner.

2. Petitioner is a partnership firm engaged in wholesale trading of iron and steel and is a registered dealer under the CGST/SGST Acts, 2017. Pursuant to a show cause notice alleging discrepancies noticed during scrutiny of returns for the financial year 2017-2018, it was alleged that petitioner had availed CGST and SGST wrongly. It was stated that CGST and SGST credits did not comply with the eligibility criteria prescribed under Section 16(2) of the GST Act and there were no documents to support the tax credit to the extent claimed by the petitioner. The show cause notice further stated that the IGST credit which the appellant claimed was wrongly treated as CGST and SGST credits. The Adjudicating Authority by Ext.P3 Adjudication order confirmed the demand of Rs.14,57,108/- along with corresponding interest of Rs.12,03,691/- towards excess input tax credit availed by the petitioner. A penalty of Rs.1,45,710/- was also imposed under Section 73(1) of the GST Act. On appeal, the said demand and consequential penalty were confirmed by Ext.P6 order. Petitioner has thus approached this Court challenging the aforesaid proceedings.

3. I have heard Adv. Karthika Maria, the learned counsel for the petitioner as well as Dr.Thushara James, the learned Senior Government Pleader.

4. Petitioner is alleged to have wrongly claimed IGST credit as CGST and SGST credits. However, in a recent judgment of this Court in Rejimon Padickapparambil Alex v. Union of India [2024 KHC Online 7215], on an almost similar situation, it was observed 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 IGST, CGST and SGST. It was further observed that the said credit ledger represents a wallet with compartments for IGST, CGST and SGST funds and the entire wallet has to be taken into consideration, instead of individual compartments.

5. The aforementioned decision elucidates that Section 73 of the GST Act is attracted only when tax has not been paid or when there is a short payment or when any amount has been erroneously refunded, or where any input tax has been wrongly availed or utilised for any reason.

6. In the instant case, it cannot be stated that petitioner had wrongly availed input tax credit. Even going by the orders of the Adjudicating Authority the mistake committed by the petitioner was at the most a technical one, since CGST/SGST was availed instead of IGST. The alleged excess claim of CGST and SGST was due to the availability of eligible IGST credit. Since the GST system treats the electronic credit ledger as a unified source, there cannot be a wrongful availing or utilization of input tax credit in the instant case. There cannot also be any loss of revenue as well, arising from the utilization of CGST/ SGST instead of IGST.

7. Taking note of the aforesaid, I am of the view that the impugned order Ext.P6 is liable to be set aside and a reconsideration ought to be directed in the light of the judgment mentioned above.

Accordingly, Ext.P6 is set aside, and the third respondent is directed to reconsider the appeal filed by the petitioner afresh in light of the judgment in Rejimon Padickapparambil Alex v. Union of India [2024 KHC Online 7215].

The writ petition is allowed as above.