ITC availment under wrong head should not be penalised: High Court

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Is availing ITC under wrong head by mistake, a serious crime ?

- TaxReply

In this case, High Court addressed an important issue related to the availment of Input tax credit (ITC) under wrong head of GST (i.e. CGST, SGST, IGST).

Case Background:

- Proceedings were initiated against them under Section 73 of the CGST Act. It was alleged that they availed input tax credit wrongly, which was a contravention of Section 16(2)(c) of the GST Act.

- A show-cause notice led to the issuance of an order, determining that the petitioners had availed excess input tax credit amounting to Rs. 2,00,219/- each under the categories of CGST and SGST.

- The petitioners were directed to pay this amount along with due interest and penalties within three months.

- Upon filing a rectification petition, the initial order was dismissed, prompting the petitioners to seek intervention from the Kerala High Court.

Arguments and Legal References:

- The respondent (tax officer) argued that the petitioners 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:

1. Court’s Rationale:

- The court also 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.

- This common pool functions like a wallet with compartments for different tax credits, suggesting flexibility in usage for GST payments.

2. Judicial Decision:

- The High Court determined that the principles from that previous case 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.

3. Outcome:

- 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 judgement referred above.

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