Proceedings Under Section 73 of CGST Act on Wrong Credit Availment Held Not Maintainable
The Hon’ble Kerala High Court, in the case of Rejimon Padickapparambil Alex v. Union of India [WA No. 54 of 2024 dated November 26, 2024], held that the availment of Input Tax Credit (ITC) under the wrong head constitutes a technical mistake and does not fall under the scope of “wrong availment” of ITC. Consequently, proceedings under Section 73 of the CGST Act for imposing interest and penalty in such cases are not maintainable.
Key Facts of the Case
Appellant: Rejimon Padickapparambil Alex, a proprietorship concern operating under the name Padiken Silks, is a GST-registered dealer.
The Appellant, in the case of inter-state inward supplies, inadvertently misclassified the IGST component in Form GSTR-3B. Instead of reporting the IGST separately, the Appellant bifurcated it into CGST and SGST components.
This resulted in a mismatch between Form GSTR-2A and Form GSTR-3B.
The Assessing Authority issued a demand order against the Appellant, alleging utilization of unavailable credit, followed by proceedings under Section 73 of the CGST Act.
The Hon’ble Single Judge Bench initially dismissed the Appellant’s writ petition, prompting the Appellant to file an appeal before the Hon’ble Division Bench of the Kerala High Court.
Issue
Whether proceedings under Section 73 of the CGST Act for imposing interest and penalty on credit availed under the wrong head are maintainable?
Held by the Kerala High Court
- Scope of Section 73
The Court clarified that Section 73 of the CGST Act applies when tax is not paid, short paid, erroneously refunded, or wrongly availed/utilized ITC. - Technical Mistake, Not Wrong Availment
The Court observed that the Appellant’s action was a technical error and not a case of “wrong availment” or “utilization” of ITC.
The IGST credit was split into CGST and SGST components inadvertently, but there was no outward supply attracting IGST.
- Judgment
The Impugned Judgment and demand order were set aside.
It was held that such technical errors are outside the ambit of Section 73, provided no wrongful intent or misuse is involved.
Our Comments
Clarification on Interest Under Section 50(3)
Circular No. 192/04/2023-GST (dated July 17, 2023) provided a detailed clarification on charging interest under Section 50(3) of the CGST Act. Key points include:
Interest is not payable if the total ITC balance (including IGST, CGST, and SGST) does not fall below the amount of wrongly availed ITC.
Interest applies only when the combined ITC balance in the electronic credit ledger falls below the wrongly availed amount.
Rule 88B (3): Interest on Wrongly Availed ITC
As per Rule 88B(3) [Notification No. 14/2022–Central Tax]:
Interest is calculated from the date of utilization of wrongly availed ITC until its reversal or payment.
Utilization is deemed to occur if the electronic credit ledger balance falls below the amount of wrongly availed ITC.
Conclusion
The Kerala High Court’s decision reaffirms that technical errors in reporting ITC under the wrong head do not warrant proceedings under Section 73, provided there is no actual misuse or wrongful intent. Taxpayers should ensure accurate reporting in GST returns to avoid unnecessary disputes, while authorities are encouraged to distinguish between technical mistakes and actual misuse of ITC.
For more details, refer to Circular No. 192/04/2023-GST and Rule 88B of the CGST Rules.
