No Reversal Of ITC Due To ITC Claimed In Wrong Head, CGST and SGST Credit claimed Instead Of IGST And IGST Credit claimed Instead Of CGST & SGST Kerala High Court
AUTHOR :Muhammed Mustafa C T
https://taxgtower.blog/brqblog/my_post_view/No-Reversal-Of-ITC-Due-To-ITC-Claimed-In-Wrong-Head-CGST-and-SGST-Credit-claimed-Instead-Of-IGST-And-IGST-Credit-claimed-Instead-Of-CGST-SGST-Kerala-High-Court-4-480-423No Reversal Of ITC Due To ITC Claimed In Wrong Head, CGST and SGST Credit claimed Instead Of IGST And IGST Credit claimed Instead Of CGST & SGST Kerala High Court
GST being a new law, there were (are) lot of confusion in understanding of the law which could have led to non-compliance, errors in payments, claim of ITC etc. Few of them could have get clarified. Now, during the audit or annual return process many of these issues are arising and identified. Few of the common issues are wrong type of ITC claimed on inward supplies.
Wrong type of ITC claimed
Common issue observed during audits are claim of wrong type of credits which could lead to denial of credits or loss of credit due to time limit and payment of interest due to wrong claim.
In case of output tax paid in wrong head solution is specified in the act. In CGST section 77 and IGST section 19 that if paid tax on wrong head then again pay in correct head and apply for refund and refund will be sanction that the amount of tax paid on wrong head. In this case there is no revenue loss to the government though there could be difference in the State government which could benefitted, that is why the provision Section 77 and Section 19 have been inserted.. But in case of ITC claimed in wrong head in the act the law makers no were mentioned about it means that is not a problems because if anybody erroneously claimed IGST as CGST and SGST the central government and state government get their portion of tax and if anybody erroneously claimed CGST and SGST as IGST the central government and state government also get their portion of tax means there is no revenue loss to the government ( revenue neutral). In my opinion the ITC which erroneously claimed in wrong head no need to revise.
The different type of errors observed in ITC claim along with possible solutions are discussed below:
Sl No | Type of error | Possible solution |
1 | ITC claimed on restricted goods / services in Section 17(5) of CGST Act | Reverse/payback along with applicable interest. If sufficient ITC balance is there, an argument could be taken on non-applicability considering proposed amendment in Section 50 to levy interest only on net liability after ITC adjustment. Not free from litigation. |
2 | IGST amount in invoice claimed as CGST + SGST credit or CGST + SGST charged within State claimed as IGST | Revenue neutral. There may not be need of reversal/ pay back as it does not lead to overall excess claim of ITC. However, department could still dispute stating that SGST/ CGST cannot be cross utilised and credit claim by converting it as IGST to utilise for all types of payment is not right. |
3 | Credit of CGST + SGST of other State claimed as CGST + SGST or as IGST credit within the State | Credit would not be eligible and requires reversal. Argument could be taken that CGST credit should not be restricted. However, the same is subject to litigation as it is charged for intra-State supplies. Few advance rulings also disallowed it. |
4 | Invoice raised from Maharashtra with IGST to Branch A (bill to) Karnataka but shipped to Branch B in Kerala. ITC claimed in Branch B. | Credit should be claimed in Branch A. Even GSTR-2A would support this claim as type of GST would be depending upon the bill to location. Branch B should be eligible to claim credit based on invoice from Branch A. |
5 | Invoice raised and goods shipped from Maharashtra with IGST to Branch A Karnataka but credit claimed in Branch Kerala. | Credit to be reversed in Kerala. If time limit lapsed for claim of credit, Karnataka would not be able to take credit. Remote possibility is to contend that GSTR-3B is not a return prescribed and time limit for taking credit for FY 2017-18 is date of annual return (Recent HC decision of Gujarat in case of AAP and Co. could be relied upon) |
6 | CGST + SGST paid on import supplies under RCM claimed as credit instead of IGST payment | Type of tax paid could be questioned which however, may not have much impact due to revenue neutrality. Tax paid on import supplies eligible for credit based on self-invoice. |
7 | GST wrongly paid and credit claimed on unspecified categories of expenses under RCM - Ex: Rent-a-Cab | Revenue neutral. However, department may dispute to get back such wrongly paid tax as refund instead of claiming ITC. Such transactions are not free from litigation |
Kerala HC Allows Rectification in GSTR-3B for Erroneous ITC Accounting
Rectification in return to be allowed when ITC in GSTR-3B accounted as IGST credit instead of CGST and SGST credit erroneously
The Hon’ble Kerala High Court in the case of M/s. Chukkath Krishnan Praveen v. State of Kerala [WP(C) No. 41219 OF 2023 dated December 8, 2023] allowed the writ petition and directed that, the rectification in return should be allowed when Input Tax Credit (“ITC”) in GSTR-3B is accounted as the Integrated Goods and Services Tax (“IGST”) credit instead of the Central Goods and Services Tax (“CGST”) and the State Goods and Services Tax (“SGST”) credit erroneously.
Facts:
M/s. Chukkath Krishnan Praveen (“the Petitioner”) committed the error in filing GSTR-3B returns based on which the Assessment Order dated August 21, 2023 (“the Impugned Order”) was passed. The Petitioner made a representation before the Respondent Authorities vide Representation dated October 21, 2023 (“the Representation”) for rectifying the mistake/error in the returns filed.
Thereafter, the Petitioner filed a writ petition for directing the Revenue Department to permit the Petitioner to rectify the mistake in Form GSTR-3B by accounting the ITC as IGST instead of CGST and SGST ITC. The Petitioner also prayed for refund of IGST ITC and thereafter, adjusting the IGST credit towards SGST and CGST liability. The Petitioner also prayed that the Representation filed by the Petitioner be treated as a Rectification Application.
Issue:
Whether rectification in return be allowed when ITC in GSTR-3B is accounted as IGST credit instead of CGST and SGST credit erroneously?
High court Held:
The Hon’ble Kerala High Court in the case of WP(C) 41219 of 2023 disposed the writ petition and directed that the Representation filed by the Petitioner be treated as Rectification application and pass the necessary order in accordance with law after granting a proper hearing to the Petitioner within a period of two months.
Conclusion
The Kerala High Court’s judgment provides relief to the petitioner, allowing rectification in GSTR-3B for the erroneous accounting of ITC as IGST credit instead of CGST and SGST credit. The court’s directive underscores the importance of rectifying genuine errors in returns and aligns with the principles of natural justice by granting a hearing to the petitioner in the rectification process.
Disclaimer:
(Note: Information compiled above is based on my understanding and review. Any suggestions to improve above information are welcome with folded hands, with appreciation in advance. All readers are requested to form their considered views based on their own study before deciding conclusively in the matter. Team BRQ ASSOCIATES & Author disclaim all liability in respect to actions taken or not taken based on any or all the contents of this article to the fullest extent permitted by law. Do not act or refrain from acting upon this information without seeking professional legal counsel.)
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