1. M/s XYZ was served a show cause notice dated XX December 2023, alleging that there is mismatch in output liability declared in GSTR-1 vis-à-vis tax paid in GSTR-3B.
2. On the verification of the discrepancy, it was found that the Noticee has inadvertently paid the CGST and SGST tax liability under the IGST head. Consequently, the amount of tax paid under IGST head is paid in excess amounting to Rs. XXXX/- and further, the amount of tax paid in excess under IGST head is exactly equal to short payment of total tax under CGST and SGST head.
NOTICEE’S SUBMISSIONS
TAX LIABILTY OF CGST OR SGST HEAD ERRONEOUSLY PAID UNDER IGST HEAD CAUSING NO REVENUE LOSS TO GOVERNMENT EXCHEQUER
1. That the department while issuing the impugned SCN dated XX December 2023 held that there is a difference in output tax liability declared in GSTR-1 vis-à-vis actual tax paid by the Noticee in its GSTR -3B for the F.Y. 20XX-XX, leading to short payment of taxes under CGST and SGST head amounting to Rs. XXXX/-.
2. In this regard, it is submitted that, the Noticee has inadvertently paid the liability of CGST and SGST head under the IGST head amounting to Rs. XXXX/-, leading to short payment under CGST & SGST head and consequently excess payment under IGST head. That such discrepancy is the result of the clerical error made on account of the Noticee.
No demand must be made when error is revenue neutral in nature leading to no loss to Government exchequer
3. As already submitted, that such difference was the result of the clerical error made by the Noticee (tax liability of CGST and SGST head inadvertently paid under the IGST head). It is imperative to note here that said clerical error leads no revenue loss to the Government exchequer.
4. Reliance in this regard is placed on following decisions wherein it has been held that no demand survives in case of revenue neutral situations wherein there is no loss to Government exchequer –
- Neptune Textile Mills Limited vs Commissioner of C. Ex., Ahmedabad cited in 2011 Taxo.online 4 (Tri. – Ahmd.)]
“5. Even if the problem is examined from another angle, we find that having availed the credit under the head Basic Excise duty and having used the entire credit for payment of basic excise duty, the appellant have paid the additional excise duty from PLA. If the Revenue’s contention is that a part of the basic excise duty credit should have been availed under the head additional excise duty, the appellant was entitled to use the same very credit for payment of additional excise duty, instead of paying the additional excise duty from PLA. The net result would have remained the same inasmuch as the appellants were required to pay a part of the basic excise duty from PLA. As such, we find that the entire exercise is Revenue neutrality.
6. In view of our foregoing discussions, we set-aside the impugned order and allow the appeal with consequential relief to the appellants.”
- Guala Closure (India) Private Limited vs. Commissioner of C. Ex., Daman cited in 2016 Taxo.online 111 (Tri. – Ahmd.)
“2. The appellant deposited an amount of Rs. 1,36,954/ vide TR-6 challans for payment of duty of basis excise duty and took the credit of the same in their PLA account. However, instead of utilizing this amount for payment of basic excise duty, they paid Education Cess out of the said amount. The Revenue’s objection is that in as much as the correct head of account in TR-6 challans was not mentioned for the Education Cess amount while depositing the amount in TR-6 challans, the same would pose accounting problems for the Revenue. While appreciating the above stand of the Revenue, I find that admittedly the appellant has paid Education Cess out of the amount so deposited by them, though the said amount was deposited under accounting head of basic excise duty, the appellant cannot be held liable for payment of Education Cess again. Ld. Advocate however has agreed to correct the entries in PLA by depositing the same amount under the head of Education Cess and crediting back the amount of Cess paid from the basic excise duty account, for which purposes, the appellant would be given opportunity by the jurisdictional Central Excise authorities.
3. I do not consider it a fit case for confirmation of interest or imposition of penalty upon the appellant as the entire exercise was revenue neutral and the appellant has admittedly paid the Education Cess. The same are accordingly set aside.”
- Further, reliance is also placed on the judgment of Hon’ble CESTAT Bangalore in the matter of M/s Maini Precision Products Ltd v. Commissioner of Central Tax, Bengaluru East 2021 Taxo.online 1443 (Tri. – Bang.)] wherein it was held that pre-requisite of revenue neutrality is that there is no extra benefit to the assessee and no loss is caused to the Revenue and these two pre-requisites are fulfilled in the present case. Relevant extract of the judgment is reproduced verbatim as under –
“6….…….…………. Further, I also find that once the Department has not disputed the eligibility or entitlement of credit then the failure of the appellant to distribute the same and transition to GST after coming into force of GST is only a procedural lapse and it will not affect the substantive right of the appellant because the failure to comply with the provisions of ISD are at best maybe termed as procedural irregularity and it has been consistently held by various Courts that substantive right cannot be denied merely on procedural irregularity. Similarly, the extended period of limitation invoked by the Department is not sustainable in the present case because the appellant has not concealed any information from the Department and all the documents were provided by the appellant to the Audit Party and on the basis of Audit Report, the SCN was issued. Further the entire demand in the present case results into revenue neutral because even if the appellant had distributed the credit, it would have been available for utilization by appellant post GST regime in terms of Section 25 of the CGST Act,2017.
6.1. Further, I find that pre-requisite of revenue neutrality is that there is no extra benefit to the assessee and no loss is caused to the Revenue and these two pre-requisites are fulfilled in the present case because even if the disputed credit was distributed to the units at a pro-rata basis, net effect of such transaction would have been NIL and in the present case, the SCN was issued to the appellant after the introduction of GST that at which point the issue has become revenue neutral because the appellant has taken one registration.
7. In view of my discussion above and by following the ratios of various decisions relied upon by the appellant cited supra, I am of the considered view that the impugned order is not sustainable in law because in the present case, the entire situation is revenue neutral and therefore the demand is not sustainable and I set aside the same by allowing the appeal of the appellant.”
5. Based on the above submission along with the judicial pronouncements, it is evident that the demand cannot be validated when the error is revenue neutral i.e., not leading to any loss to the government exchequer or any extra benefit to the Noticee.
Section 77 of the Act allows refund in case of tax paid under wrong tax head and also, no Interest shall be payable by taxpayers in such cases
6. Further, without prejudice to the above submission, even if the Noticee is being asked to deposit the alleged short tax in the CGST and SGST head, refund of excess tax paid under IGST head must be allowed to the Noticee in pursuance of Section 77 of the CGST Act, 2017 (“the Act”). Moreover, the alleged demand of interest on the said deposit is not in line with the provision of section 77 of CGST Act, 2017. The relevant extract of section 77 of the CGST Act, 2017 is reproduced verbatim herein under as –
“Section 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.”
(Emphasis Supplied)
7. Further, even under the provision of IGST Act vide Section 19, the Noticee is eligible to the get the refund of the excess tax paid in the IGST head. The relevant extract of section 19 of the IGST Act, 2017 is reproduced verbatim herein under as-
Section 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.”
8. In this regard, reliance is placed upon the judgment of Hon’ble Andhra Pradesh High Court in the matter of M/s. Walchandnagar Industries Limited v. The Assistant Commissioner (ST) & Ors. cited in 2022 Taxo.online 739 (Andhra Pradesh High Court), wherein it was held that the petitioner is eligible to get the refund of excess tax paid and can make application to refund under IGST.
“………
7. Having regard to the above and in view of the fact that the nature of transaction is not in dispute, the present Writ Petition is disposed of directing the petitioner to pay C.G.S.T. and S.G.S.T. within a period of three (3) weeks from today and thereafter, make a claim for refund of the amount under I.G.S.T., which the petitioner is entitled to, before respondent No.1, in which event, respondent No.1 shall deal with the same as early as possible, preferably, within a period of four (4) weeks thereafter. There shall be no order as to costs.”
9. Similar view has been taken by Hon’ble Jharkhand High Court in the matter of M/s Shree Nanak Ferro Alloys Pvt. ltd. v. the Union of India, cited in 2019 Taxo.online 916, wherein it was held that the Petitioner is eligible for the refund of excess tax paid as well as interest cannot be levied on the tax amount outstanding in IGST head. The relevant extract of the pronouncement is reproduced verbatim herein under as-
“…………..
17. In that view of the matter, we direct the petitioner Company to deposit the amount of ₹ 41,98,642/-, under the IGST head within a period of 10 days from today, towards the liability of September, 2017. The petitioner shall not be liable to pay any interest on the said amount. The petitioner shall also be entitled to get the refund of the amount of ₹ 41,98,644/- deposited by them under the CGST head, or they may get the amount adjusted against their future liabilities, in accordance with law, as they may choose.
18. Consequently, the letter dated 26.04.2019, issued by the respondent No.2, as contained in Annexure-7 to the writ application, saddling the petitioner Company with the liability to pay the short paid IGST, amounting to ₹ 41,98,642/-, along with interest, is hereby, quashed.”
10. As per the submission made supra, it is clear that the legislative intent has been not to penalise the clerical errors resulting in non-payment of tax under one head and instead, simultaneous excess payment of tax under another head.
Conclusion
11. Accordingly, no present demand must be sought from the Noticee as the entire situation is revenue neutral in nature and if still any demand is to be confirmed for inadvertently wrong payment of CGST & SGST liability under IGST head, Noticee must be eligible to get the refund of the said excess tax paid under IGST head in pursuance of Section 77 of the Act read with Section 19 of IGST Act. Moreover, if any demand is to be confirmed, no interest liability accrues under Section 77 of the Act.
12. Thus, based on the submissions made above it is evident that there is no revenue loss to the Government exchequer or no short payment of tax is made by the Noticee, the demand proposed vide SCN dated XX December 2023 alleging the short payment of tax is unsustainable & liable to be set aside.
