FORM GST DRC – 06
[See rule 142(4)]
Reply to the Show Cause Notice
To,
The Office of Deputy Commissioner
Ward No. …, State GST
Room No. ….., … Floor
Sub: Reply to Show Cause Notice in case of M/s XYZ and Sons (GSTIN: ……)
Ref: Your Notice dated …. DIN: ……
Respected Sir,
Greetings!
We, M/s XYZ and Sons, trader of ……. Located at ……………. are in receipt of above mentioned Notice. This Notice with respect to claim of ITC in wrong head. It is mentioned that the claim was of Rs. 100/- IGST whereas the Assessee has claimed ITC of Rs. 50/- in CGST and SGST each. The notice demands payment of Rs. 50/- each in CGST and SGST along with interest of Rs….. along with Penalty of Rs…..
| ITC as per GSTR-2A | ITC availed in GSTR-3B | |
| IGST | CGST | SGST |
| 100 | 50 | 50 |
With this reply we hereby contest the notice on the following grounds:
A. Details of the Assessee
| S.No | Particular | Details |
| A. | Name of the Assessee | M/s XYZ and Sons |
| B. | GSTIN | ……. |
| C. | Address of Principal Place of Business | …., |
| D. | Status of Assesse | …. |
| E. | Detail of Supplies Provided | Trader of…… |
| G. | Financial Year | 2018-2019 |
| H. | Whether any Offence Case is Booked in respect of GST, Service Tax, Central Excise, Income Tax, VAT/Sales Tax, If so, details thereof | NO |
B. FACTS OF THE CASE
Facts of the case
1. The facts mentioned in the notice are correct.
1.1. We with this reply acknowledge that the available ITC was of IGST and mistakenly we have claimed the same as ITC CGST and ITC SGST. This was an honest clerical mistake and there is no revenue loss to the Department as this is revenue neutral.
1.2. GST is “One Nation One Tax” and claim of wrong ITC is only a mistake in head.
Extracts of Statutory Provisions of the Case
2. SECTION 49: PAYMENT OF TAX, INTEREST, PENALTY AND OTHER AMOUNTS
(1) Every deposit made towards tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit or debit cards or National Electronic Fund Transfer or Real Time Gross Settlement or by such other mode and subject to such conditions and restrictions as may be prescribed, shall be credited to the electronic cash ledger of such person to be maintained in such manner as may be prescribed.
(2) The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41, to be maintained in such manner as may be prescribed.
(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 3[and restrictions] within such time as may be prescribed.
(5) The amount of input tax credit available in the electronic credit ledger of the registered person on account of-
(a) integrated tax shall first be utilised towards payment of integrated tax and the amount remaining, if any, may be utilised towards the payment of central tax and State tax, or as the case may be, Union territory tax, in that order;
(b) the central tax shall first be utilised towards payment of central tax and the amount remaining, if any, may be utilised towards the payment of integrated tax;
(c) the State tax shall first be utilised towards payment of State tax and the amount remaining, if any, may be utilised towards payment of integrated tax
Provided that the input tax credit on account of State tax shall be utilised towards payment of integrated tax only where the balance of the input tax credit on account of central tax is not available for payment of integrated tax;;
(d) the Union territory tax shall first be utilised towards payment of Union territory tax and the amount remaining, if any, may be utilised towards payment of integrated tax:
Provided that the input tax credit on account of Union territory tax shall be utilised towards payment of integrated tax only where the balance of the input tax credit on account of central tax is not available for payment of integrated tax;
(e) the central tax shall not be utilised towards payment of State tax or Union territory tax; and
(f) the State tax or Union territory tax shall not be utilised towards payment of central tax.
(6) The balance in the electronic cash ledger or electronic credit ledger after payment of tax, interest, penalty, fee or any other amount payable under this Act or the rules made thereunder may be refunded in accordance with the provisions of section 54.
(7) All liabilities of a taxable person under this Act shall be recorded and maintained in an electronic liability register in such manner as may be prescribed.
(8) Every taxable person shall discharge his tax and other dues under this Act or the rules made thereunder in the following order, namely:-
(a) self-assessed tax, and other dues related to returns of previous tax periods;
(b) self-assessed tax, and other dues related to the return of the current tax period;
(c) any other amount payable under this Act or the rules made thereunder including the demand determined under section 73 or section 74.
(9) Every person who has paid the tax on goods or services or both under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such tax to the recipient of such goods or services or both.
(10) A registered person may, on the common portal, transfer any amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger under this Act, to the electronic cash ledger for,––
(a) integrated tax, central tax, State tax, Union territory tax or cess; or
(b) integrated tax or central tax of a distinct person as specified in sub-section (4) or, as the case may be, sub-section (5) of section 25, in such form and manner and subject to such conditions and restrictions as may be prescribed and such transfer shall be deemed to be a refund from the electronic cash ledger under this Act:
Provided that no such transfer under clause (b) shall be allowed if the said registered person has any unpaid liability in his electronic liability register.
(11) Where any amount has been transferred to the electronic cash ledger under this Act, the same shall be deemed to be deposited in the said ledger as provided in subsection (1).
(12) Notwithstanding anything contained in this Act, the Government may, on the recommendations of the Council, subject to such conditions and restrictions, specify such maximum proportion of output tax liability under this Act or under the Integrated Goods and Services Tax Act, 2017 which may be discharged through the electronic credit ledger by a registered person or a class of registered persons, as may be prescribed
Explanation.-For the purposes of this section,-
(a) the date of credit to the account of the Government in the authorised bank shall be deemed to be the date of deposit in the electronic cash ledger;
(b) the expression,-
(i) “tax dues” means the tax payable under this Act and does not include interest, fee and penalty; and
(ii) “other dues” means interest, penalty, fee or any other amount payable under this Act or the rules made thereunder
3. SECTION 155: BURDEN OF PROOF
Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person.
4. SECTION 41: AVAILMENT OF INPUT TAX CREDIT
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to avail the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited to his electronic credit ledger.
(2) The credit of input tax availed by a registered person under sub-section (1) in respect of such supplies of goods or services or both, the tax payable whereon has not been paid by the supplier, shall be reversed along with applicable interest, by the said person in such manner as may be prescribed:
Provided that where the said supplier makes payment of the tax payable in respect of the aforesaid supplies, the said registered person may re-avail the amount of credit reversed by him in such manner as may be prescribed.
Accordingly, demanding reversal of input tax credit availed by the recipient and payment of the tax again is a futile exercise and it is revenue neutral.
Discussions and Submissions
5. With reference to the above subject we would like to submit that such activity of reversal of ITC is not helping generating any fresh revenue but is more an accounting treatment.
Relevant Case Laws
6. In support of our above-mentioned submission, we rely on the following judicial pronouncements rendered by the various Honourable High Courts in GST been categorically stated that merely wrong head is not sustainable in law:
Divya S.R. vs Union of India cited in 2024 Taxo.online 64 Kerala High Court [W.P (C) 38 of 2024, dated 03-Jan-2024]
Where assessee by mistake claimed entire IGST credit under heads of CGST and SGST instead of claiming it under head IGST and filed rectification application before GST Authorities, authority was to be directed to consider application of assessee and pass necessary order expeditiously.
Background: In a noteworthy case regarding the Goods and Services Tax (GST) in India, a petitioner-assessee encountered a significant issue while filing the monthly return in GSTR 3B for July 2017. Due to an oversight, the assessee mistakenly claimed the entire input tax credit under the heads of Central GST (CGST) and State GST (SGST), instead of properly claiming it under the head of Integrated GST (IGST).
Issue at Hand: This error led to the passing of an assessment order that did not reflect the correct allocation of the input tax credit. The assessee, recognizing the mistake, applied for rectification. However, the concerned authority did not take a decision on this rectification application, leaving the issue unresolved.
Legal Action: Faced with inaction, the assessee sought judicial intervention by filing a writ petition. The petition aimed to secure a writ of mandanus directed at the respondent authority. The purpose was to compel the authority to offset the input tax credit of IGST, which was erroneously claimed under CGST and SGST for the period from July 2017 to March 2018, against the output tax liability of the petitioner for the same period.
Court's Decision: The court took cognizance of the matter, emphasizing the necessity for a swift resolution. It was held that the writ petition should be disposed of by issuing a directive to the respondent authority. The authority was instructed to consider the application filed by the assessee diligently and to pass the necessary orders on it expeditiously.
Legal Reference: The court's decision was grounded in Section 18 of the Integrated Goods and Services Tax Act, 2017. This section, among other provisions, outlines the conditions and procedures for claiming input tax credits and rectifying mistakes related to them.
Implications: This case underscores the importance of accurately claiming input tax credits under the correct heads of GST. It also highlights the judiciary's role in ensuring that administrative authorities adhere to the principles of fairness and responsiveness, especially in matters affecting the financial obligations of taxpayers. The decision serves as a precedent for similar cases, where rectification of tax credit claims is sought due to genuine errors in filing returns.
Jayakrishnan K.S. vs Union of India cited in 2024 Taxo.online 138 Kerala High Court [WPC No. 44117 of 2023, dated 03-Jan-2024]
Where assessee wrongly claimed IGST credit under CGST and SGST in GSTR 3B, revenue authority was directed to consider assessee's rectification application expeditiously and, until then, no coercive action could be taken for wrongly assessed tax.
Context and Issue: In a pivotal judgment by the Kerala High Court, a case was brought forward involving an erroneous claim of Input Tax Credit (ITC) by an assessee for the period from July 2017 to March 2018. The crux of the matter lay in the wrongful allocation of Integrated Goods and Services Tax (IGST) credit under the heads of Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). This misallocation resulted in an assessment order that inaccurately calculated the tax liability of the assessee.
Legal Proceedings: To address this error, the assessee filed a rectification application under rule 89(1)(A) of the GST Rules, 2017, seeking to correctly offset the IGST credit against their tax liability. This move aimed to amend the previous oversight and ensure the accurate adjustment of input tax credits as per the provisions of the GST framework.
Judicial Decision: The Kerala High Court's deliberation on the matter led to a significant ruling. The court directed the revenue authority to promptly review the assessee's rectification application. It underscored the importance of providing the assessee with an opportunity for a hearing before making any final decision. This directive was aimed at ensuring a fair and transparent process, allowing the assessee to present their case effectively.
Furthermore, the court instructed the revenue authority to abstain from enforcing any coercive measures against the assessee based on the tax amount stipulated in the initial assessment order. This stay on coercive actions was to remain in effect until a final order on the rectification application was passed.
Legal Basis: The court's decision was grounded in the legal framework provided by Section 16 of the Central Goods and Services Tax Act, 2017, and the Kerala State Goods and Services Tax Act, 2017, along with Rule 89 of the Central Goods and Services Tax Rules, 2017/Kerala Goods and Services Tax Rules, 2017. These statutes collectively outline the provisions for claiming input tax credit and the procedures for rectifying any errors related to such claims.
Implications: This ruling is of paramount importance for taxpayers and the administration alike, highlighting the judiciary's role in ensuring that the GST law's rectification mechanisms are accessible and functional. It reinforces the principle that taxpayers should be allowed to correct inadvertent errors in their tax filings without undue penalty, ensuring that the GST regime operates justly and efficiently. Additionally, this case serves as a precedent for similar disputes, emphasizing the necessity for a judicious approach in handling rectification applications under the GST framework.
Conclusion and Request for Relief
It is hereby humbly submitted that in our opinion we are not liable for the reversal of ITC based upon the above-mentioned submission and the relevant case laws.
As ITC is the vested right of the Registered Person, once taken as per the applicable provisions of the Section 16 of the CGST Act, 2017. We have followed all the conditions for claiming of the ITC and the only mistake was claim of ITC in incorrect head but this is revenue neutral.
It is further submitted that, there is no question for the interest demand on ineligible ITC availed as mentioned in the SCN because U/s 50(3), interest can be demand in case of excess claim of ITC, but in our case, we have not excess claim the ITC. Extract of the Section 50(3) is reproduced below.
Section 50 (3)- A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty four per cent., as may be notified by the Government on the recommendations of the Council.
We would like to further submit that we when the demand is not applicable there is no question of Penalty. There are general guidelines for imposing penalties under GST and “mens rea”* is one of the pre-condition for levy of penalty. 9.1. The Supreme Court has held that “mens rea” is an essential ingredient in every offence for imposition of penalty. [Commissioner of Sales Tax, Uttar Pradesh vs Sanjiv Fabrics (Civil Appeal Nos. 2344-2347 of 2004 with C. A. Nos. 6382-6383 of 2004, dated 10-Sep-2010) cited in 2016 Taxo.online 43
We would request you to drop the Notice and we would further request your lordship to provide us “Opportunity of Being Heard” before passing any order against us.
Thanks and Regards
For XYZ and Sons
XYZ Authorised Signatory
