No penalty for IGST claimed as CGST /SGST

The petitioner, a partnership firm engaged in wholesale trading of iron and steel, challenged the Appellate Authority’s order, which confirmed the findings of the Adjudicating Authority regarding the wrongful cross-utilization of Input Tax Credit (ITC). The order upheld the demand for CGST and SGST wrongly claimed, along with interest and penalty.

Allegations Against the Petitioner

1. During the scrutiny of returns for the financial year 2017-18, discrepancies were noticed, leading to a show cause notice.

2. The authorities alleged that the petitioner:

   • Wrongly availed CGST and SGST credits that did not meet the eligibility conditions under Section 16(2) of the GST Act.

   • Lacked supporting documents for the claimed tax credit.

   • Incorrectly, IGST credit was claimed as CGST and SGST credit.

3. The Adjudicating Authority confirmed a demand of ₹14,57,108, with an additional interest liability of ₹12,03,691, and imposed a penalty of ₹1,45,710 under Section 73(1) of the GST Act.

4. On appeal, the Appellate Authority upheld the demand and penalty (Ext.P6 order), leading the petitioner to file a writ petition before the High Court.

   
   

Key Arguments & Precedents Cited

The petitioner relied on a recent judgment in "Rejimon Padickapparambil Alex v. Union of India" [2024 KHC Online 7215], which dealt with a similar issue. In that case, the High Court observed that:

• The Electronic Credit Ledger is a unified fund with different compartments for IGST, CGST, and SGST, and should be considered as a whole, rather than individual tax categories.

• Section 73 of the GST Act applies only when there is non-payment, short payment, erroneous refund, or wrongful ITC availing/utilization.

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High Court's Observations & Findings

1. The petitioner did not wrongly avail ITC:

   • The mistake was technical, as IGST credit was utilized as CGST and SGST.

   • The total ITC availability remained the same, and there was no misrepresentation.

2. No loss of revenue to the government:

   • The GST system recognizes the ECL as a unified pool, so utilization of CGST/SGST instead of IGST does not lead to a loss of tax revenue.

3. Authorities did not consider the correct interpretation of ITC utilization:

   • The Adjudicating Authority and Appellate Authority failed to apply the principles established in Rejimon Padickapparambil Alex’s case.

     
     

Conclusion

The High Court recognized the mistake as a technical error and ruled that wrong cross-utilization of ITC does not amount to wrongful availing or misutilization, provided the total credit remains unchanged. The case was sent back for fresh evaluation, ensuring fair treatment under GST law.

High court of Kerela in the case of Kalleppuram Metals Versus Union of India