Case Law Details
Maruthengal Moideen Vs State Tax Officer (Kerala High Court)
Proceedings under Section 73 of the CGST Act for denial of ITC and imposing interest and penalty on availment of Credit under wrong head not maintainable
Summary: The Kerala High Court in Maruthengal Moideen & Ors. v. State Tax Officer & Ors. [W.P.(C) No. 20837 of 2024] addressed the issue of input tax credit (ITC) availed under the wrong tax heads—CGST and SGST instead of IGST. The Court quashed the order issued under Section 73 of the Central Goods and Services Tax Act, 2017, along with the associated penalties and interest, ruling that such an error does not constitute wrongful availment of ITC as per Section 16(2)(c) of the Act. Relying on its earlier judgment in Rejimon Padickapparambil Alex v. Union of India, the Court noted that the electronic credit ledger functions as a unified pool of funds for tax payments, and such technical errors do not lead to revenue loss, thus proceedings under Section 73 were unwarranted. The Court emphasized that as long as sufficient ITC remains in the electronic credit ledger to cover liabilities across all tax heads, the misclassification of ITC does not attract penalties or interest under Section 50(3) of the CGST Act. Additionally, the Court remanded the case for reconsideration in light of this clarification. The ruling aligns with the broader principle that procedural lapses without revenue loss should not lead to punitive action, as clarified in Circular No. 192/04/2023-GST. This decision provides guidance for similar cases involving technical errors in tax compliance.
Facts:
Maruthengal Moideen (“the Petitioner”) filed a writ petition against order dated September 12, 2023 (“the Impugned Order”) passed under Section 73(9) of the CGST Act passed by the Revenue Department (“the Respondent”), demanding of reversal of ITC along with applicable Interest and penalty. alleging contravention of Section 16(2)(c) of the CGST Act. A rectification petition against the Impugned Order filed was also dismissed vide Order dated January 22, 2024 (“the Rectification Order”).The Respondent in its counter affidavit filed contended that Petitioner had wrongly availed the input tax credit under the heads CGST, SGST instead of IGST, and therefore, the impugned orders are not liable to be interfered by the Hon’ble High Court under Article 226 of the Constitution of India.
Issue:
Whether ITC availed under CGST and SGST instead of IGST constitutes wrongful availment and is liable for recovery under Section 73 of the CGST Act?
Held:
The Hon’ble Kerala High Court in W.P.(C) No. 20837 of 2024 held as under:
- Observed that, the judgment of the Hon’ble Kerala High Court in the case of Rejimon Padickapparambil Alex v. Union of India & Ors. [WA No. 54 of 2024 dated November 26, 2024], the Division Bench of the Hon’ble High Court had observed that there can be no wrong availing of input tax credit when such credit, available in IGST, was availed under the heads CGST and SGST.
- Noted that, the Electronic Credit Ledger has to be treated as a pool of funds, designated for different types of taxes such as IGST, CGST and SGST, it represents a wallet with different compartments of funds. The credit ledger represents a wallet with different compartments of funds.
- Opined that, Since the petitioner had availed credit under the CGST and SGST instead of IGST and utilized the same for payment of GST, the Hon’ble High Court was of the view that the benefit of the decision in the aforesaid cited case is applicable to the Petitioner.
- Held that, the Impugned Order and Rectification Order is liable to be set aside and remanded back the matter for reconsideration taking into consideration the aforesaid case.
Our Comments:
The Hon’ble Kerala High Court in the case of Rejimon Padickapparambil Alex v. Union of India [WA No. 54 of 2024 dated November 26, 2024] allowed the appeal filed against the judgment passed by the Hon’ble Single Judge Bench thereby holding that the availment of ITC under wrong head is a technical mistake and would not fall within the purview of wrong availment of ITC, therefore, the initiation of proceedings for levy of interest and penalty under Section 73 of the CGST Act cannot be initiated in the said case.
Circular No. 192/04/2023-GST dated July 17, 2023, has given clarification on charging of interest under Section 50(3) of the CGST Act, regarding charging of interest under sub-section (3) of section 50 of the CGST Act in the cases where IGST credit has been wrongly availed by a registered person. Clarification is being sought as to whether such wrongly availed IGST credit would be considered to have been utilized for the purpose of charging of interest under sub-section (3) of section 50 of CGST Act, read with rule 88B of Central Goods and Services Tax Rules, 2017 (“the CGST Rules”), in cases where though the available balance of IGST credit in the electronic credit ledger of the said registered person falls below the amount of such wrongly availed IGST credit, the total balance of input tax credit in the electronic credit ledger of the registered person under the heads of IGST, CGST and SGST taken together remains more than such wrongly availed IGST credit, at all times, till the time of reversal of the said wrongly availed IGST credit. The Relevant para has been reproduced as hereunder:
“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 Rules”.
Sub-rule (3) of Rule 88B of the CGST Rules [Inserted vide Notification No. 14/2022–Central Tax dated July 05, 2022 w.e.f. July 01, 2017]
“(3) In case, where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with sub-section (3) of section 50, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub-section (3) of section 50.
Explanation. -For the purposes of this sub-rule, –
(1) input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.
(2) the date of utilisation of such input tax credit shall be taken to be, –
(a) the date, on which the return is due to be furnished under section 39 or the actual date of filing of the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or
(b) the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other cases.”
Relevant Provisions:
Section 19 of the IGST Act:
“19: Tax wrongfully collected and paid to Central Government or State Government.
(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 77 of the CGST Act
77: Tax wrongfully collected and paid to Central Government or State Government.
(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.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
Petitioner is a registered tax payer under the GST Acts 2017. Proceedings were initiated against the petitioner under Section 73 of the CGST Act alleging that he had wrongly availed input tax credit, in contravention of Section 16(2)(c) of the GST Act. Pursuant to a show cause notice, Ext.P6 order was issued under Section 73 determining an excess input tax credit availed by the petitioner to the tune of Rs.2,00,219/- each, under the heads of CGST and SGST and he was directed to pay the said amount along with applicable interest and penalty within a period of three months from the date of receipt of the order. Subsequently, a rectification petition was filed by the petitioner, which was also dismissed by Ext.P10. Petitioner has approached this Court challenging Ext.P6 and Ext.P10 orders.
2. A counter affidavit has been filed by the first respondent pointing out that petitioner had wrongly availed the input tax credit under the heads CGST, SGST instead of IGST, and therefore, the impugned orders are not liable to be interfered by this Court under Article 226 of the Constitution of India.
3. I have heard Smt. Devananda Narasimham V., the learned counsel for the petitioners as well as Smt. Jasmin M.M., the learned Government Pleader.
4. In the decision in Rejimon Padickapparambil Alex v. Union of India and others 2024 KHC Online 7215 a Division Bench of this Court had observed that there can be no wrong availing of input tax credit when such credit, available in IGST, was availed under the heads CGST and SGST.
5. In this context, it needs to be mentioned that the electronic credit ledger has to be treated as a pool of funds, designated for different types of taxes such as IGST, CGST and SGST. The credit ledger represents a wallet with different compartments of funds. Since the petitioner had availed credit under the CGST and SGST instead of IGST and utilised the same for payment of GST, I am of the view that the benefit of the decision in Rejimon Padickapparambil‘s case (supra) is applicable to the petitioner. The impugned orders having not considered the aforesaid legal proposition, are required to be set aside and a reconsideration be directed.
6. Accordingly, I set aside Ext.P6 and Ext.P10 orders and direct the first respondent to reconsider Ext.P6, afresh bearing in mind the dictum laid down in Rejimon Padickapparambil s case (supra) as expeditiously as possible, at any rate, within a period of three months from the date of receipt of a certified copy of this judgment.
The writ petition is allowed as above.
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