HC: No Interest if IGST wrongly paid inadvertently as CGST

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The Hon’ble HC, Jharkhand in the matter of Shree Nanak Ferro Alloys Pvt. Ltd.  vs. Union of India [W.P.(T) No. 2246 of 2019 dated December 18, 2019] directed the Petitioner to deposit the amount of Rs. 41,98,642/-, under the Integrated Goods and Service Tax (“IGST”) head, towards the liability of September, 2017 and quashed the letter dated April 26, 2019 imposing liability to pay short paid IGST, amounting to Rs.41,98,642/-, along with interest.

Facts:

Shree Nanak Ferro Alloys Pvt. Ltd. (“the Petitioner”) filed its GSTR-1 for the month of September, 2017, showing its total IGST liability for that month at Rs.74,51,127/-, the Central Goods and Central Tax (“CGST”) liability to be Rs.2,68,470/-, and State Tax liability for Rs.2,68,470/-.

Subsequently, the Petitioner submitted its GSTR- 3B, in which the liability shown under the IGST there was a deficient liability amounting to Rs.41,98,642.42/-, whereas in the CGST the excess was shown to the tune of Rs.41,98,643.71/-, and the tax was also paid accordingly.

This remained unnoticed for a period of about one year, and subsequently by letter dated November 1, 2018, the Petitioner was informed that in course of audit by CERA, it was observed after the scrutiny of GSTR-1 and GSTR-3B filed by the Petitioner, that the Petitioner had short paid IGST to the tune of Rs.41,98,642.42/- and accordingly, the Petitioner was asked to make the payment along with the interest.

The Petitioner replied that the amount of the IGST of Rs.41,98,643.71/-, was inadvertently paid under the head of CGST, instead of IGST, and as such it was not a case of short payment, rather, it was the case of payment of IGST under a different head. Further, this mistake had occurred in the early phase of implementation of the GST, and accordingly, the adjustment of the said amount may be made in the appropriate head.

Later, the Petitioner was issued a letter dated April 26, 2019, asking the Petitioner to deposit the IGST amounting to Rs.41,98,642/- along with interest thereon.

Issue:

The Petitioner challenged the letter dated April 26, 2019.

Held:

The Hon’ble HC, Jharkhand in W.P.(T) No. 2246 of 2019 dated December 18, 2019 held as under:

  • It is not the case that the Petitioner has concealed the transaction or has committed any fraud in discharging its tax liability as Petitioner had filed its GSTR-1 in which the tax liability was correctly shown.
  • Further, depositing the cash in the electronic cash ledger for the CGST head, at the place of IGST head, possibly no benefit was going to be derived by the Petitioner. Thus, the Petitioner was bona fide and that due to the initial stage of the GST regime, there might be some confusion, and the cash was wrongly deposited in the wrong electronic cash ledger.
  • Under Section 49 (3) of the Central Goods and Central Tax Act, 2017 (“CGST Act”), the ‘electronic cash ledger’ may be used for making the payment of the tax and the other liabilities under this Act only, i.e., CGST Act, and there is no provision of cross utilization of the fund as in case of ‘electronic credit ledger’ under Section 49 (4) of the CGST Act, but Section 77(1) of the CGST Act, read with Section 19(2) of the Integrated Goods and Central Tax Act, 2017 (“IGST Act”), clearly lay down that a registered person who has paid the Central tax, treating the transaction to be intra-State supply, as in the case of the Petitioner, but which turns out to be inter-State supply, is entitled to the refund of the amount of tax so paid, under Section 77 (1) of the CGST Act, and at the same time such person cannot be saddled with the liability of interest in view of the provision of Section 19 (2) of the IGST Act.
  • Accordingly, allowed the Petitioner the benefit of the provisions of Section 77 (1) of the CGST Act, read with Section 19(2) of the IGST Act.
  • The Court did not enter into the question whether the amount deposited by the Petitioner wrongly under the CGST head could be adjusted under the IGST head, as learned counsel for the Petitioner has very fairly conceded that the Petitioner can deposit the amount of tax within a week and shall either claim the refund of the amount wrongly deposited under the CGST head, or the same may be adjusted against their future liabilities under the CGST head.
  • Direct the Petitioner to deposit the amount of Rs. 41,98,642/-, under the IGST head, towards the liability of September, 2017 and quashed the letter dated April 26, 2019, demanding interest.

Relevant provisions:

Section 49(3) and (4) of the CGST Act:

“49. Payment of tax, interest, penalty and other amounts.

(3) The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made thereunder in such manner and subject to such conditions and within such time as may be prescribed.

(4) The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed.”

Section 77 of the CGST Act:

“77. Tax wrongfully collected and paid to Central Government or State Government.

(1) A registered person who has paid the Central tax and State tax or, as the case may be, the central tax and the Union territory tax on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.

(2) A registered person who has paid integrated tax on a transaction considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall not be required to pay any interest on the amount of central tax and State tax or, as the case may be, the central tax and the Union territory tax payable.”

Section 19 of the IGST Act:

“19. Tax wrongfully collected and paid to Central Government or State Government.

(1) A registered person who has paid integrated tax on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed.

(2) A registered person who has paid central tax and State tax or Union territory tax, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any interest on the amount of integrated tax payable.”

Section 92(1) of the CGST Rules:

92. Order sanctioning refund. –

(1) Where, upon examination of the application, the proper officer is satisfied that a refund under sub-section (5) of section 54 is due and payable to the applicant, he shall make an order in FORM GST RFD-06 sanctioning the amount of refund to which the applicant is entitled, mentioning therein the amount, if any, refunded to him on a provisional basis under sub-section (6) of section 54, amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable:

Provided that in cases where the amount of refund is completely adjusted against any outstanding demand under the Act or under any existing law, an order giving details of the adjustment shall be issued in Part A of FORM GST RFD-07.

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