DECEMBER 04, 2024

By Vijay Kumar

REJIMON Padickapparambil Alex runs a proprietorship concern with the name and style 'Padiken Silks' and is a registered GST taxpayer. Rejimon's story is one of those rare gems where tax compliance turns into an adventure of mistaken identities-and identities mean the various tax components!

He received various inward supplies of goods, both inter-state and intra-state. For the inter-state inward supplies, on which IGST (Integrated Goods and Services Tax) paid by the supplier, he failed to follow some procedure. In this unfortunate case, he, instead of showing the IGST component in the eligible credit details, 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. This resulted in a mismatch.

What is significant, however, is that it is undisputed that it was the amount shown as IGST that was split into the components of CGST and SGST and added to the corresponding columns in Form GSTR 3B.

As usual in these cases, the GST officer bestowed upon him a Show Cause Notice demanding the amount of IGST which he transformed into CGST and SGST - which of course was confirmed by an adjudication order. Our aggrieved Rejimon is before the Kerala High Court which passed an interesting order last week - 2024-TIOL-2024-HC-KERALA-GST pleading that his only mistake was that he had not shown the IGST amounts separately against available credit and had resorted to an exercise of splitting the IGST amount towards CGST and SGST since he did not have any outward supply that attracted IGST. And that misstep proved to be pretty costly.

My story is not about Renjimon, but about K. Hareendran, GST Assistant Commissioner.

During the course of the hearing of the Renjimon case, the High Court was shown a copy of an order dated 14.12.2023 passed by Shri. Hareendran K, IRS, Assistant Commissioner of Central Tax, East Division-6, Bengaluru, which considered an identical issue regarding the availment of input tax credit as CGST and SGST instead of IGST. In that case, the Assessing Authority had issued a notice alleging that there had been a wrong availment of input tax credit since the IGST amounts paid by the assessee, and in respect of which he ought to have taken credit as such, had not been shown separately as IGST but had been split by the assessee into the CGST and SGST components while taking credit.

The Assistant Commissioner ordered:

1. The noticee submitted that Section 77 of the CGST Act, 2017 deals with cases where tax has been paid under an incorrect head. This section outlines the provisions for refunding taxes paid under an incorrect head in situations where the nature of the transaction is subsequently determined to be different from what was initially considered. Since the legislation itself is allowing a refund of tax paid, they requested that ITC availed under the head CGST/SGST be adjusted with IGST.

2. The noticee argued that when the department is allowed to adjust the refund being claimed against any outstanding tax liability in accordance with rule 92(1A), this entire exercise proposed to levy tax in the SCN is revenue neutral and will only result in unnecessary utilization of resources of the revenue & yield nothing in return. Therefore, noticee lays stress on this process of adjustment and asserts that the amount remitted under one head can be adjusted under another head.

3. Noticee relied on the Kerala High Court decision in the case of Saji S. Vs. Commissioner of State - 2018-TIOL-2902-HC-KERALA-GST that allowed transfer and adjustment of amount from "SGST" to "IGST" and also held that it is inequitable for authorities to let the assessee suffer on account of any delay in transfer.

4. In the instant case, there is no dispute regarding the eligibility of the input tax credit claimed by the noticee; but the allegation pertains to the noticee erroneously availing the input tax credit under incorrect heads, specifically CGST & SGST credit availed instead of IGST credit.

5. Proviso to Section 49(5) ensures a clear and defined order of priority for utilizing input tax credits, preventing cross utilization between different tax components. In the instant case, the noticee availed credit under CGST and SGST instead of IGST and utilised the same for payment of GST arising out of outward supplies. Therefore, based on the interpretation of Section 49(5) and the specific order of priority for utilizing input tax credits, the noticee's actions are consistent with the legal framework.

6. CBIC vide Circular No.192/04/2023-GST dated 17th July 2023 had given clarification on charging of interest under section 50(3) of the CGST Act, 2017, in cases of wrong availment of IGST credit and reversal thereof. The essence of the clarification is that the input tax credit (ITC) available in the electronic credit ledger should be considered as a pool of funds designated for different types of taxes, such as IGST, CGST and SGST. These accounts represent a wallet with compartments for IGST, CGST, and SGST funds. Therefore, while determining interest under rule 88B of the CGST Rules, the entire wallet has to be taken into consideration, not just individual compartments.

7. In short, the analogy of the circular is that the GST system treats the electronic credit ledger as a unified resource, and interest is incurred if, collectively, the available funds fall below the amount of wrongly availed credit during the specified period.

8. I adopt the analogy in deciding this issue. In the instant case, there is no loss of revenue, either to the Centre or to any State, arising from the availment and utilisation of CGST/SGST instead of IGST. In view of the above findings, I hold that the noticee is not liable to reverse the CGST and SGST availed instead of IGST through the GSTR 3B and the demand in the Show Cause Notice is liable to be dropped.

The High Court extracted the whole findings of the Assistant Commissioner and observed,

We have deemed it appropriate to extract the above findings from the order of the Assistant Commissioner since we find that it not only represents the correct view of the procedural law in this regard, but more importantly, demonstrates that revenue officials, even at the level of Assistant Commissioner, who are often the first point of contact between an assessee and the revenue department, are capable of rendering timely and effective justice in our country which is known for its huge backlog of cases. At a time when the justice dispensation system is looking for ways and means to reduce litigation generally, and especially in the field of taxation where delays can affect the nation's economy, orders such as the one extracted above come as a welcome breath of fresh air and are to be duly appreciated and encouraged. It needs no gainsaying that an expeditious disposal of cases, especially those involving procedural aspects of taxation, is the need of the hour so as to ensure fairness and certainty in tax administration.

It's rare to see such high praise from a High Court for an Assistant Commissioner, and deservingly so! I am often accused of being overly critical of bureaucrats, but I always assure that I am more than happy to praise them when they give me a chance. Unfortunately, those opportunities don't come around too often.

It is really great that a High Court has found an Assistant Commissioner capable of rendering timely and effective justice and that his order comes as a welcome breath of fresh air and is to be duly appreciated and encouraged.

Nearly ten years ago in TIOL-DDT 2525 - 27 01 2015, I quoted from a judgement - 2011-TIOL-395-HC-KAR-ST, in which the High Court observed,

We would like to place on record, our appreciation for the assistance received from the officials of the Excise Department, in particular Mr. D. P. Nagendra Kumar, Commissioner, CDR, CESTAT and Ms. Sudha Koka, Additional Commissioner, SDR, CESTAT.

It is not every day that a Departmental officer gets encomiums from a High Court and that too for assisting in a case.

Have you heard of K ROSEMARY TURCOTTE? She also had a similar problem. She is popularly known as Katrina Kaif.

Mere payment of ST liability under wrong head does not mean that service tax liability has not been discharged - Proceedings by way of SCN and adjudication was not warranted - order set aside and appeal allowed: CESTAT in - 2012-TIOL-1780-CESTAT-MUM

Curious to know what happened to the case of Rejimon Padickapparambil Alex? He won, maybe thanks to our hero, K. Hareendran, GST Assistant Commissioner, whose clarity must have been useful to the High Court in granting relief to Rejimon.

Before parting, the High Court taking note of the anxiety and apprehension of the State Counsel that the State might be deprived of its legitimate share of IGST paid by suppliers outside the State in this case, ordered:

we make it clear that on the respondent State producing a copy of this judgment, along with a representation before the GST Council, the GST Council shall issue necessary directions to resolve the issue by taking note of the declaration in this judgment.

That's a State problem.

Until next week