Treatment of wrong kind of tax payment viz, CGST and SGST /UTGST In lieu of IGST and vice versa.

Introduction:

♣ It is possible to come across situations where a registered person has paid the wrong kind of tax viz, CGST and SGST / UTGST in lieu of IGST and vice versa. Therefore, such incorrect payment of tax, if any, should be identified and considered appropriately.

♣ The provisions of the said sections shall apply only in a situation where it is ‘held’ that a wrong tax is charged and paid. The word ‘held’ must be understood to construe a situation where an adjudicating authority holds an interstate transaction as intra-state transaction or vis a versa. This reasoning is also supported by the fact that the later part of the sections speak of “shall be granted refund” which necessarily implies that the adjudicating authority who holds a transaction where a tax is wrongfully charged and paid shall also be vested with the duty to grant refund. At this juncture, it may be important to note that some experts believe that the rigors of unjust enrichment contained in Sec. 54(4)/ (5) of the CGST Act would still have to be satisfied. However, it is possible that in such a situation the provisions of Section 54(8) of the said Act help in alleviating difficulties and enabling one to seek refund.

♣ A situation where parties themselves decide that a wrong tax has been charged and paid would not fall within these two provisions, whereas the effect of it must be given through table 9A of GSTR 1 read with GSTR 3B.

Analysis:

  • Section 77 of the CGST Act provides for the adjustment of taxes paid incorrectly. Where a registered person has considered a transaction to be an intra-State supply and paid CGST and SGST/UTGST and is subsequently held to be an inter-State supply and IGST is liable to be paid, the registered person, is required to pay IGST on such transaction. The registered person is entitled to claim refund of CGST and SGST/UTGST paid on the transaction. In such situations interest is not payable by virtue of Section 77(2) of the CGST Act and 19(2) of the IGST Act, 2017.
  • Similarly, where the registered person has considered a transaction to be an inter-State supply and paid IGST and SGST/UTGST, and is subsequently held to be an intra-State supply and CGST and SGST/UTGST is liable to be paid, the registered person is required to pay the applicable CGST and SGST/UTGST on such transaction. In this situation also, it is to be noted that interest is not liable to be paid when the correct tax is paid.

Illustration:

Situation 1 – Supply treated as intra-State supply and CGST and SGST/UTGST paid, whereas, the said supply is an inter-State supply and IGST is liable to be paid. Such error has been identified and rectified in the returns filed for the period July 2017 – March 2018

(a) Where the supplier has amended the turnovers relating to intra-State supply declared in the returns filed earlier as inter-State supply in Form GSTR 1 filed for the period July 2017 to March 2018 the amount of IGST is paid thereon should be declared against Part II Sl. No. 4K of Form GSTR – 9. Similarly, the amount of incorrect CGST and SGST / UTGST paid earlier should be declared against Part II Sl. No. 4L. If the supplier has filed an application seeking refund of CGST and SGST/UTGST paid earlier (prior to filing of Form GSTR – 9), the details should be furnished against Part VI Sl. No. 15A.

(b) The amount of IGST applicable on the supply should be declared appropriately in Part III Sl. No. 9 of Form GSTR – GSTR 9C. The total amount of tax paid as declared in Annual Return (GSTR 9) against Part III Sl. No. 9Q would be in excess of the amount of tax payable. Therefore, the reason for unreconciled amount of tax shall be mentioned under Part III Sl. No. 10 as “excess tax incorrectly paid as intra-State supply instead of inter-State supply”.

Situation 2 – Supply treated as intra-State supply and CGST and SGST/UTGST is paid. However, supply is inter-State supply and IGST is liable to be paid. Such error has been identified and rectified in the returns filed for the period April 2018 – September 2018 along with claim of refund

(i) Where the supplier has amended the tax paid on intra-State supply declared earlier, as inter-State supply in the Form GSTR 1 filed during the period April 2018 – September 2018, such adjustment of taxes shall be declared in Part V Sl. No. 10 and Part V Sl. No. 11 of Form GSTR-9. The IGST payable shall be added by declaring the liability against Part V of Sl. No. 10 in GSTR 9.

In respect of CGST and SGST/UTGST, the registered supplier should not reduce the liability under Sl. No. 11 of Form GSTR-9. This is for the reason that the supplier is required to file an application for refund of CGST and SGST/UTGST paid on the transaction.

(ii) The amount of IGST applicable on the supply should be declared appropriately in Part III Sl. No. 9 of Form GSTR – GSTR 9C. The total amount of tax paid as declared in Annual Return (GSTR 9) against Part III Sl. No. 9Q would be in excess of the amount of tax payable. Therefore, the reason for unreconciled amount of tax shall be mentioned under Part III Sl. No. 10 as “excess tax incorrectly paid as intra-State supply instead of inter-State supply”.

Situation 3 – Supply treated as intra-State supply and CGST and SGST/UTGST is paid. However, supply is inter-State supply and IGST liable to be paid. Such error has been identified but not rectified in the returns filed

(a) Where the incorrect tax paid on a supply is identified subsequently and the same is not amended in Form GSTR 1 filed till September 2018, then there does not arise any requirement to adjust the tax paid incorrectly in Form GSTR-9. The correct tax liability has to be declared against Part III Sl. No. 9 of GSTR 9C and the applicable tax has to be remitted appropriately.

(b) The correct tax liability must be declared in sl. No. 9 of GSTR 9C. The registered supplier has to take steps to file the refund application in respect of taxes wrongly paid.

Conclusion:

The taxpayer should, in such cases, devise a suitable audit program to ascertain the nature of supply and shall verify the nature of taxes collected and paid. After appropriate checks, the rectification exercise of tax paid incorrectly should be undertaken.

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