Under the GST provisions there is no such mechanism which allows the taxpayer to adjust the tax amount paid under the wrong head with the correct head. For example, in case the taxpayer paid tax under the CGST and SGST but later it was found tax was to be paid under the IGST, then the taxpayer has no choice except to claim the refund towards payment of tax made under the wrong head subject to first payment of tax under the correct head.

There are specific provisions in this regard under the GST Law which entitle the taxpayer to claim refund the tax amount paid under wrong head. These provisions are reproduced as under:

Section 77 CGST Act

GST - Refund of Payment of Tax Made Under Wrong Head

Tax wrongfully collected and paid to Central Government or State Government.

77.(1) A registered person who has paid the Central tax and State tax or, as the case may be, the central tax and the Union territory tax on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.

(2) A registered person who has paid integrated tax on a transaction considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall not be required to pay any interest on the amount of Central tax and State tax or, as the case may be, the Central tax and the Union territory tax payable.

Section 19 IGST Act

Tax wrongfully collected and paid to Central Government or State Government.

19. (1) A registered person who has paid integrated tax on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed.

(2) A registered person who has paid central tax and State tax or Union territory tax, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any interest on the amount of integrated tax payable.

Section 89(1A) CGST Rules

(1A) Any person, claiming refund under section 77 of the Act of any tax paid by him, in respect of a transaction considered by him to be an intra-State supply, which is subsequently held to be an inter-State supply, may, before the expiry of a period of two years from the date of payment of the tax on the inter-State supply, file an application electronically in FORM GST RFD-01 through the common portal, either directly or through a Facilitation Centre notified by the Commissioner:

Provided that the said application may, as regard to any payment of tax on inter-State supply before coming into force of this sub-rule, be filed before the expiry of a period of two years from the date on which this sub-rule comes into force. 

Circular 162/18/2021-GST dated 25-09-2021 – Clarification relating to provisions contemplated under the sections 77 CGST Act and 19 IGST Act.

Judgement

SBI CARDS & PAYMENT SERVICES LIMITED Vs UNION OF INDIA AND OTHERS | CWP-8108-2021 (O&M) – HIGH COURT OF PUNJAB & HARYANA | Date of Order – 08-10-2021 – 2021-VIL-775-P&H 

On perusal of the provisions enumerated under section 77 CGST and 19 IGST and rule 89(1A) it can be analysed the article as under:

How the refund of tax may be claimed if tax had been paid under head CGST and SGST instead of IGST.

♦ This mistake may be come to the knowledge by:-

  1. The Taxpayer himself or
  2. The Proper Officer after adjudication, appeal, inquiry, investigation etc..

♦ Procedure to be followed by the Taxpayer for such refund.

  1. First Pay the tax in correct head. For example, if tax had been wrongly paid under CGST and SGST heads then first pay the tax under IGST head.
  2. Thereafter, file an application of refund in Form GST RFD-01.

♦ Limitation Period for filing an application of refund

The Person may file an application of refund within two years from the date of payment of tax under the correct head. But if payment of tax made under the correct head before issuing the notification 35/2021-Central Tax, dated 24.09.2021 then two years period shall be reckoned from the date of notification issued i.e.24-09-2021.

Examples

A. The payment is made on 10-05-2021 under the correct head. Last date for filing a refund application shall be 23-09-2023. Two years reckoned from the date of notification i.e.24-09-2021 because payment made before the issuing date of notification.

B. The payment has been made on 23-11-2021 under the correct head. Last date for filing refund application shall be 22-11-2023. Two years reckoned from the day of payment of tax i.e.23-11-2021 because this payment is made after the issuing date of notification.

♦ Interest on payment of tax under correct head

This issue may be understood by the undermentioned example.

For example, the error was happened in the month of August 2018 which was come to the knowledge of the taxpayer in September 2020. In September 2020 the taxpayer made payment under the correct head. Whether interest will be charged for period from August 2018 to September 2020?

The law has clearly stated under section 77(2) of the CGST Act and section 19(2) of the IGST Act that interest shall not be required to pay in such case.

Circular 162/18/2021-GST dated 25-09-2021 

Paras of the Circular clarifying the issues are reproduced.

3. Interpretation of the term “subsequently held”

3.1 Doubts have been raised regarding the interpretation of the term “subsequently held” in the aforementioned sections, and whether refund claim under the said sections is available only if supply made by a taxpayer as inter-State or intra-State, is subsequently held by tax officers as intra-State and inter-State respectively, either on scrutiny/ assessment/ audit/ investigation, or as a result of any adjudication, appellate or any other proceeding or whether the refund under the said sections is also available when the inter-State or intra-State supply made by a taxpayer, is subsequently found by taxpayer himself as intra-State and inter-State respectively.

3.2 In this regard, it is clarified that the term “subsequently held” in section 77 of CGST Act, 2017 or under section 19 of IGST Act, 2017 covers both the cases where the inter-State or intra-State supply made by a taxpayer, is either subsequently found by taxpayer himself as intra-State or inter-State respectively or where the inter-State or intra-State supply made by a taxpayer is subsequently found/ held as intra-State or inter-State respectively by the tax officer in any proceeding. Accordingly, refund claim under the said sections can be claimed by the taxpayer in both the above-mentioned situations, provided the taxpayer pays the required amount of tax in the correct head.

4.2 Limitation Period to apply the refund

4.2 The aforementioned amendment in the rule 89 of CGST Rules, 2017 clarifies that the refund under section 77 of CGST Act/ Section 19 of IGST Act, 2017 can be claimed before the expiry of two years from the date of payment of tax under the correct head, i.e. integrated tax paid in respect of subsequently held inter-State supply, or central and state tax in respect of subsequently held intra-State supply, as the case may be. However, in cases, where the taxpayer has made the payment in the correct head before the date of issuance of notification No.35/2021-Central Tax dated 24.09.2021, the refund application under section 77 of the CGST Act/ section 19 of the IGST Act can be filed before the expiry of two years from the date of issuance of the said notification. i.e. from 24.09.2021.

4.4 Refund not available error rectified by issuance of credit mode or any other method

4.4 Refund under section 77 of the CGST Act / section 19 of the IGST Act would not be available where the taxpayer has made tax adjustment through issuance of credit note under section 34 of the CGST Act in respect of the said transaction.

Judgement

SBI CARDS & PAYMENT SERVICES LIMITED Vs UNION OF INDIA AND OTHERS

CWP-8108-2021 (O&M) – HIGH COURT OF PUNJAB & HARYANA

Date of Order – 08-10-2021 – 2021-VIL-775-P&H 

In this case the SBI Credit Card Department had made payment of tax Rs.108 crore under the wrong heads CGST and SGST. The payment of tax was actually to be paid under IGST head.

The SBI Credit Card Department (the petitioner) applied for refund of Rs.108 crore as wrongly paid under the wrong heads. The Department required it to first make payment under the correct head IGST. The petitioner hence deposited the tax under the correct head IGST. Even after deposited the amount under the correct head the GST Department rejected the refund application on the ground that the phrase ‘subsequently held‘ in Section 77 of the CGST Act could only apply in a case where an adjudicating authority had actually held whether a transaction was inter-state or intra-state.

The Hon’ble Court held the case in favour of the petitioner while considering the clarification in regard of ‘subsequently held’ by virtue of circular 162/18/2021-GST dated 25-09-2021. The Standing Counsel of the Department also agreed to it, but he contended to remit back the case to the respondent to re-decide the issue in view of the circular issued.

The Hon’ble Court declined the contention of the standing counsel of the department to remit back the case with observations that Had the amount not been paid in correct head, of course, what, the learned Standing Counsel is arguing would have been applicable but once the

petitioner paid that extra amount on asking of the respondents under the IGST the liability of the respondents to refund an amount of Rs.108 crores odd wrongly deposited under CGST & SGST cannot be disputed. We cannot also lose sight of the fact that the money has now laying with the respondents for the past two and a half years.

The petition is allowed, and respondents are directed to refund the amount which was deposited earlier by the petitioner towards CGST and SGST along with applicable interest within a period of one month.

*****

To reach to me for any suggestion, rectification, amendment and/or further clarification in regard of this article my email address is [email protected]

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