ITC Availment Under Wrong Head Should Not Be Penalised: High Court

In a recent ruling, the High Court has addressed an important issue related to the availment of Input Tax Credit (ITC) under the wrong head of GST (i.e. CGST, SGST, IGST). The court held that such errors should not be penalized, as these credits form a common pool in the electronic credit ledger.

Case Background

The case involved two petitioners who were alleged to have wrongly availed input tax credit under CGST and SGST instead of IGST. A show-cause notice was issued to them under Section 73 of the CGST Act, and they were directed to pay a penalty of Rs. 2,00,219/- each. The petitioners filed a rectification petition, which was dismissed. They then approached the Kerala High Court for relief.

Arguments and Legal References

The respondent (tax officer) argued that the petitioners had wrongly availed input tax credit under CGST and SGST instead of IGST. They contended that this misallocation justified the orders and that interference by the court under Article 226 of the Constitution of India was not warranted.

Judgment Summary

The High Court referred to its previous decision, which held that credit availing errors between IGST, CGST, and SGST heads are not necessarily wrong as these credits form a common pool in the electronic credit ledger. The court also noted that this common pool functions like a wallet with compartments for different tax credits, suggesting flexibility in usage for GST payments.

The High Court determined that the principles from that previous case should apply to the petitioners’ situation also. Consequently, the court set aside the challenged orders. The court directed the state tax authorities to reconsider the initial order. This reconsideration was ordered to be completed within three months from receiving a certified copy of the court’s Judgment. The writ petition filed by the petitioners was allowed, granting them relief and setting a new deadline for the tax authority’s reconsideration of the case after considering the legal judgment referred above.

Implications

This ruling is a significant relief for taxpayers, as it clarifies that genuine errors in availing ITC under the wrong head should not be penalized. The court has also directed the state tax authorities to reconsider the initial order, which will provide an opportunity for the petitioners to present their case again