REFUND OF IGST, ERRONEOUSLY PAID, CANNOT BE ADJUSTED AGAINST THE DUES OF CGST/SGST

[Mr. M. GOVINDARAJAN]

It is common amongst the registered person to pay the tax in different head than its own head.  In such cases in the earlier period the excess paid of one tax could be adjusted against the tax which is payable by the assessee or the same may be refunded to the assessee.

Section 77 of the Central Goods and Services Tax Act, 2017 provides relief to the registered person in case of wrongful payments.  Section 77(1) provides that 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.

Section 77(2) provides that 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(1) of the Integrated Goods and Services Tax Act, 2017 provides that 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.

Section 19(2) provides that 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.

In OLA FLEET TECHNOLOGIES PVT LTD VERSUS THE UNION OF INDIA - 2022 (3) TMI 1484 - TELANGANA HIGH COURT  the petitioner is engaged in the business of providing passenger transport motor vehicles on rental basis to various individuals for commercial usage.  The petitioner has also leased vehicles to various drivers located in different States.  As per the provisions of GST laws if the driver belongs to Telangana the transaction will be qualified as ‘intra-State’ transaction and will attract both CGST and SGST; if the driver belongs to other State the transaction will be deemed to be inter-State Supply and will attract IGST.

The petitioner mapped the Telangana State as Andhra Pradesh in computer system.  Since the State of the driver is Andhra Pradesh and the transaction is within Telangana the system considered the transaction as inter-State transaction instead of Intra-State transaction.  Therefore the petitioner paid IGST under the provisions of the Integrated Goods and Services Tax Act, 2017 instead of CGST and SGST.    The petitioner paid IGST to the tune of Rs.6.56 crores for the year 2018 - 19. 

The Revenue caused an inspection under Section 65 of the Act on the petitioner.  It was noticed by the Revenue during the inspection that both supply of service and place of supply were located in State of Telangana and the petitioner is required to pay CGST and SGST.  Since the petitioner paid only IGST and not CGST/SGST, the Revenue was of the view that there was a great loss of revenue to the State of Telangana.

A show cause notice was issued by the Revenue to the petitioner on 23.01.2021calling upon the petitioner to pay a sum of Rs.5.99 crores for the period 2018-19 within 15 days from the date of receipt of the notice.  Being aggrieved against the show cause notice the petitioner filed the present writ petition before the High Court.  The High Court granted stay order against the Revenue.  The Revenue filed reply to the writ petition and also filed an interim application praying the High Court to vacate the stay order.

The petitioner contended that they paid the IGST instead CGST and SGST.  The excess paid IGST amount may be adjusted to the CGST and SGST payable by the petitioner. The petitioner relied on a judgment of Kerala High Court in SAJI S., PROPRIETOR, ADITHYA AND AMBADI TRADERS, RANJITH R., PROPRIETOR, RANJITH ROADLINES VERSUS THE COMMISSIONER, STATE GST, THE ASSISTANT STATE TAX OFFICER - 2018 (11) TMI 954 - KERALA HIGH COURT in which the High Court directed the Revenue to transfer the State Tax to IGST.

The Revenue contended the following before the High Court-

• A registered person who has paid IGST 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 IGST so paid by him in such manner and subject to such conditions as may be prescribed.
• The petitioner may pay the CGST and SGST and file a claim for refund of IGST which has been paid wrongly as held in SHREE NANAK FERRO ALLOYS PVT. LTD. VERSUS THE UNION OF INDIA THROUGH THE COMMISSIONER, CENTRAL GOODS AND SERVICES TAX AND CENTRAL EXCISE, RANCHI., THE SUPERINTENDENT, RANGE-I, CENTRAL GOODS & SERVICES TAX AND CENTRAL EXCISE, RAMGARH - 2020 (1) TMI 833 - JHARKHAND HIGH COURT.
• There is no provision for adjustment of IGST with CGST and SGST as contended by the petitioner.
• When CGST and SGST are paid the CGST goes to the Consolidated Fund of India and SGST goes to the exchequer of the respective State.
• When IGST is paid the 50% amount goes to the Consolidated Fund of India and the remaining 50% of the amount goes to the Exchequer of respective State.
• The adjustment sought for by the petitioner is beyond the scope of the provisions of the GST laws.
• Since the petitioner paid IGST instead of CGST/SGST the Telangana State is under heavy loss of revenue.

The High Court heard the submissions by both the parties.  The High Court analyzed the provisions of Section 77 of the CGST Act and Section 19 of the IGST Act. The High Court observed that as in Section 77 of the CGST Act, there is also a provision under Section 19 of the IGST Act. provision for refund is made.  There is no procedure in the GST laws for the adjustment of IGST for CGST/SGST.  The High Court did not accept the judgment relied on by the petitioner.  The Jharkhand High Court also did not accept this type of adjustment.  The said High Court directed the petitioner to deposit the IGST amount within a period of 10 days without any interest and the petitioner would be entitled for the refund of CGST/SGST.

On considering the above said case law the High Court held that the petitioner should comply with the show cause notice dated 23.01.2021 and pay the CGST/SGST amount within a period of two months from the date of order.  At the same time the petitioner would be at liberty to file appropriate application under Section 19(1) of IGST Act for refund that has been paid erroneously.  On the filing of refund application by the petitioner, the High Court directed that the refund shall be processed within a period of two months from the date of receipt of refund application.