ADJUSTMENT OF GST PAID IN WRONG HEAD

[Mr. M. GOVINDARAJAN]

In payment of tax it is usual to pay the tax in the wrong head.  The service tax provisions in such scenario allow the assessee to get the refund of tax paid in the wrong head but the assessee is to pay tax in the correct head.  There was no self adjustment of tax paid in the wrong head to the correct head or by the Department.  The said problem also is available in GST provisions.

In ‘S. Saji v. The Commissioner, SGST and others’ - 2018 (11) TMI 954 – Kerala High Court, the petitioner purchased certain goods from Tamil Nadu.  While in transit of the said goods to Kerala the Authorities retained the goods and issued the demand of tax to the petitioners.  The consignor of the petitioners paid the tax under SGST along with the penalty based on the directions of the Authority.  The petitioner showed to the Authorities the receipt as evidence of tax and penalty.  The Authorities, despite the payment, refused to release the goods on the ground that the petitioner had paid the tax under SGST instead of IGST.  The petitioners requested the Authority to adjust the tax wrongly paid under SGST into IGST which was not taken into consideration.  Therefore the petitioners filed this present writ petition before the High Court.

The petitioners contended that Section 77 of the Act read with Rule 4(1) of GST Refund Rules, 2017 allow the adjustment of GST paid under wrong head to the correct head.  The Revenue contended that that the petitioner could as well pay the amount under 'IGST' and then claim a refund from the head 'SGST'.  The Revenue further submitted that if the authorities have to go for an adjustment, it will take more than a couple of months.

The High Court considered the submissions of both sides and analyzed the provisions of law relied on by the petitioners.  The High Court held that-

• Section 77 provides for the refund of the tax paid mistakenly under one head instead of another.
• Rule 4 speaks of adjustment.
• Where the amount of refund is completely adjusted against any outstanding demand under the Act, an order giving details of the adjustment is to be issued in Part A of FORM GST RFD-07. 
• The petitioner’s counsel lays stress on this process of adjustment and asserts that the amount remitted under one head can be adjusted under another head, for the demand can be any amount under the Act.

The High Court found no difficulty for the respondent officials to allow the petitioner's request and get the amount transferred from the head 'SGST' to 'IGST'. It may, as the Government Pleader has contended, take some time, but it is inequitable for the authorities to let the petitioner suffer on that count.    The High Court directed the Revenue the 2nd respondent to release the goods forthwith along with the vehicle and, then, ensure that the tax and penalty already stood remitted under the 'SGST' is transferred to the head 'IGST'.

The High Court in this case observed that Section 77 provides for the refund of the tax paid mistakenly under one head instead of another.  We may analyze the provisions of section 77 of CGST Act.  Section 77 provides two scenarios in which tax is paid in wrong heads and solution to such wrong 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 77(1) provides the situation in which the assessee paid the tax the CGST and SGST or CGST and UTGST on the hope that it is an intra-State supply.  But the said supply is later held to be inter-State supply which attracts the payment of IGST.  Here the payment of tax in the wrong head is on the genuine hope that it is an intra-State supply.  In such cases the service tax paid as SGST shall be refunded to the assessee in such manner and subject to such conditions as may be prescribed.  But the assessee is to pay IGST.

Section 77(2) provides the situation which is reverse to section 77(1).  In this situation the assessee considered the transaction as inter-State supply and paid integrated tax but subsequently it is held as intra-State supply which attracts the payment of CGST and SGST.  In this case also there is no adjustment of tax from one head to another.  One relief is granted to the assessee, if he pays the CGST and SGST or GSGT and UTGST, he is not required to pay the interest.

The petitioner relied on Rule 4(1)  of GST Refund Rules, 2017.  There is no such rule prevailing in the GST regime.  Rule 92(1) of CGST Rules (same provisions for State GST Rules also) where, upon examination of the application, the proper officer is satisfied that a refund under sub-section (5) of section 54 is due and payable to the applicant, he shall make an order in FORM GST RFD-06 sanctioning the amount of refund to which the applicant is entitled, mentioning therein the amount, if any, refunded to him on a provisional basis under sub-section (6) of section 54, amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable.  The proviso to this Rule provides that in cases where the amount of refund is completely adjusted against any outstanding demand under the Act or under any existing law, an order giving details of the adjustment shall be issued in Part A of FORM GST RFD-07.  This Rule may be wrongly quoted as Rule 4(1) of GST Refund Rules, 2017.

Rule 92 (1) authorizes the Revenue to adjust the tax, if any, outstanding, against the refund payable to the assessee.  It does not amount to adjustment of tax paid in the wrong head to the correct head.

However the judgment of the High Court is a welcome one since it is beneficial to the assessees.  The GST Council is also to consider to make rule on the adjustment of tax paid in the wrong head to the correct head in line with the judgment of the High Court, Kerala.