Proceedings under Section 73 of CGST Act imposing interest and penalty on availment of Credit under wrong head not maintainable
Summary: The Kerala High Court in Rejimon Padickapparambil Alex v. Union of India [WA No. 54 of 2024 dated November 26, 2024] held that technical errors in reporting Input Tax Credit (ITC) under the wrong head do not constitute wrongful availment, making proceedings under Section 73 of the CGST Act for interest and penalty untenable. The case involved a taxpayer who inadvertently misreported IGST as CGST and SGST in Form GSTR-3B, resulting in a mismatch with Form GSTR-2A. Despite no revenue loss or fraudulent intent, the Assessing Authority issued a demand for interest and penalty, which was initially upheld by a Single Judge Bench. However, on appeal, the Division Bench set aside the demand, stating that Section 73 applies only to cases of unpaid tax, short payments, erroneous refunds, or improper ITC utilization. Furthermore, Circular No. 192/04/2023 clarifies that interest under Section 50(3) is applicable only when the total balance of ITC across all tax heads falls below the wrongly availed amount. The Court emphasized the absence of outward IGST liabilities and recognized the mistake as technical, without revenue implications. This judgment reinforces that inadvertent errors in ITC reporting should not attract penalties under Section 73.
Facts:
Rejimon Padickapparambil Alex (“the Appellant”) is a proprietorship concern with the name and style ‘Padiken Silks’, and is a registered dealer for the purposes of payment of GST. The Petitioner, for the inter-state transactions, in receipt of the IGST paid inward supplies from outside the State, the appellant, instead of showing the IGST component in the eligible credit details in Form GSTR-3B, inadvertently showed the IGST component as nil and added the bifurcated CGST and SGST components of IGST to the existing figures showing eligible CGST and SGST credit for availment of credit which resulted in a mismatch between Form GSTR 2A and Form GSTR 3B maintained in relation to the assessee. What is significant, however, is that it is undisputed that it was the amount shown as IGST in Form GSTR 2A that was split into the components of CGST and SGST and added to the corresponding columns in Form GSTR 3B.
The Assessing Authority (“the Respondent”) noticed the mismatch and opined that the mismatch had resulted in the Appellant utilising ‘unavailable credit’ towards payment of CGST and SGST on outward supplies. Thereafter, the Respondent proceeded to issue the notice and demand order thereafter, confirming the demand against the Appellant. Aggrieved by the Demand Order passed, the Appellant filed a writ petition before the Hon’ble Kerala High Court wherein the Hon’ble Single Judge vide judgment dated December 19, 2023 (“the Impugned Judgment”) in the case of WP(C) No. 40005 of 2023 wherein the Hon’ble Single Judge dismissed the writ petition.
Aggrieved by the Impugned Judgment passed, the Appellant filed an appeal against the Impugned Judgment passed by the Hon’ble Single Division Bench of the Hon’ble Kerala High Court.
Issue:
Whether the proceedings under Section 73 of the CGST Act imposing interest and penalty on availment of Credit under wrong head is maintainable?
Held:
The Hon’ble Kerala High Court in the case of WA No. 54 of 2024 held as under:
- Noted that, Section 73 of the Central Goods and Services Tax Act, is only attracted when it appears to proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax has been wrongly availed or utilised for any reason.
- Opined that, in the present case there is no wrong availment of credit, and that the only mistake committed by the Appellant was an inadvertent and technical one wherein the Appellant omitted to mention the figures of IGST separately during filing of return especially when there is no outward supply attracting IGST.
- Held that, the Impugned Judgment passed and demand order issued against the Appellant, is set aside.
Our Comments:
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, 2017, in case of wrong availment of IGST Credit and reversal thereof stating that “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.”
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