Kerala High Court
M/S. Golden Traders vs The Assistant State Tax Officer on 5 June, 2025
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WPC.No.14998/25 1
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE ZIYAD RAHMAN A.A.
THURSDAY, THE 5TH DAY OF JUNE 2025 / 15TH JYAISHTA, 1947
WP(C) NO. 14998 OF 2025
PETITIONER:
M/S.GOLDEN TRADERS,
PMC 1/180, ST THERESA'S BUILDING, VALLAM,
RAYONPURAM, ERNAKULAM, KERALA- REPRESENTED BY ITS
MANAGING PARTNER BINOY JOSEPH, PIN - 683 543.
BY ADVS.
SHRI.AJI V.DEV
SRI.ALAN PRIYADARSHI DEV
SHRI.S.SAJEEVAN
SHRI.JASH C JAMES
RESPONDENTS:
1 THE ASSISTANT STATE TAX OFFICER,
TAXPAYER SERVICES CIRCLE, PERUMBAVOOR,
ERNAKULAM, PIN - 683 542.
2 THE JOINT COMMISSIONER OF STATE TAX - APPEALS
STATE GOODS AND SERVICES TAX DEPARTMENT, KERALA,
ERNAKULAM, PIN - 682 002.
3 THE COMMISSIONER OF STATE TAX,
THE STATE G.S.T DEPARTMENT TAX TOWER, KARAMANA P.O,
THIRUVANANTHAPURAM, PIN - 673 006.
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WPC.No.14998/25 2
4 THE STATE OF KERALA,
REPRESENTED BY ITS SECRETARY, FINANCE DEPARTMENT,
SECRETARIAT, THIRUVANANTHAPURAM, PIN - 695 001.
SHRI.ARUN AJAY SANKAR, GOVERNMENT PLEADER
THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION
ON 05.06.2025, THE COURT ON THE SAME DAY DELIVERED THE
FOLLOWING:
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WPC.No.14998/25 3
JUDGMENT
The petitioner is a partnership firm engaged in the trading of
plastic moulded chairs and watches, and is a registered taxpayer
under the Central Goods & Services Tax Act, 2017 and Kerala
State Goods & Services Tax Act, 2017. The grievance of the
petitioner is against the demand under Section 73 of the CGST
Act pertaining to the assessment year 2017-2018 issued by the 1 st
respondent.
2. Allegation based on which the proceedings referred to
above were initiated was that, according to the 1 st respondent,
there were certain irregularities on the part of the petitioner in
availing input tax credit. According to the respondent, the
petitioner availed excess input tax credit of Rs.1,29,906/.
According to the petitioner, the same was the result of a mismatch
while availing ITC under the wrong heads. Even though as
against Ext.P1, an appeal was submitted under Section 107 of the
CGST Act before the 2nd respondent, the same was rejected as per
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Ext.P2. This writ petition is submitted by the petitioner in such
circumstances challenging Exts.P1 and P2.
3. The specific contention raised by the petitioner is that,
since the discrepancy highlighted in the impugned orders pertains
to the availing of ITC under wrong heads, the same cannot be a
subject-matter under Section 73 of the GST Act and the position in
this regard is made clear by the Division Bench of this Court in
Ext.P3 judgment, i.e., Rejimon Padickapparambil Alex v.
Union of India [W.A.No.54 of 2024]. In the said decision, the
Division Bench of this Court after extracting an assessment order
passed by Asst. Commissioner of Central Tax, East Division-6,
Bengaluru while considering the same issue, it was observed as
follows in paragraph No.7 thereof:
"23. Issue 2: Wrong availment of ITC as CGST
(27,000/-) and SGST (27,000/-) instead of IGST -: During
the course of verification and reconciliation of ITC register,
it was noticed that the taxpayer had availed input tax
credit of Rs.27,000/- as CGST and 27,000/- as SGST
instead of IGST for a supply received from PIRANHA
(27AARFP6159NIZ9), a service provider located in
Maharashtra, vide invoice No.PC/19-20/01 dated
12.04.2019. It is alleged in the show cause notice that
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the ITC amounting to Rs.54,000/- [CGST:Rs.27,000/- &
SGST:Rs.27,000/-] is inadmissible under the provisions of
section 16 of CGST Act,2017.
24. The noticee in their written reply submitted that
Section 77 of the CGST Act, 2017 deals with cases where
tax has been paid under an incorrect head. This section
outlines the provisions for refunding taxes paid under an
incorrect head in situations where the nature of the
transaction is subsequently determined to be different
from what was initially considered. Since the legislation
itself is allowing a refund of tax paid, they
requested that ITC availed under the head CGST/SGST be
adjusted with IGST.
25. Further the noticee argued that when the department
is allowed to adjust the refund being claimed against any
outstanding tax liability in accordance with rule 92(1A),
this entire exercise proposed to levy tax in the SCN is
revenue neutral and will only result in unnecessary
utilization of resources of the revenue & yield nothing in
return. Therefore, noticee 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 noticee
submitted that they wish to rely on the Kerala High Court
decision in the case of Saji S. Vs. Commissioner of State
GST 2018 (19) GSTL 385 (KER) that allowed transfer and
adjustment of amount from "SGST" to "IGST" and also
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held that it is inequitable for authorities to let
the assessee suffer on account of any delay in transfer.
Therefore, relying on the decision of Kerala High Court
(Supra) tax paid wrongly under CGST and SGST should
rightly be adjusted and no further recovery under IGST is
legally sustainable.
26. I have examined Invoice No.PC/19-20/01 dated
12.04.2019, issued by PIRANHA
(GSTIN27AARFP6159NIZ), a supplier situated in
Maharashtra. The invoice specifies a taxable value of
Rs.3,00,000/-, for which the supplier charged
an Integrated Goods and Services Tax (IGST) of
Rs.54,000/-.
The particulars of this invoice have been duly recorded in
GSTR-1 and are reflected in the GSTR-2A of the noticee.
However, the noticee has availed input tax credit
amounting to Rs.27,000/- each under CGST and SGST,
instead of IGST, in the month of April 2019 for a supply
received from a service provider located in Maharashtra.
In the instant case, there is no dispute regarding the
eligibility of the input tax credit claimed by the noticee;
but the allegation pertains to the noticee erroneously
availing the input tax credit under incorrect heads,
specifically CGST & SGST credit availed instead of IGST
credit.
27. In accordance with Section 49(2) of the Goods
and Services Tax (GST) Act, the input tax credit, as
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assessed by the registered person in their return, is
credited to their electronic credit ledger. The utilization of
the electronic credit ledger for discharging payments
related to output tax is governed by the provisions outlined
in Sections 49(4) and 49(5) of the GST Act. Section 49(4)
and 49(5) is reproduced below;
Section 49(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.
Section 49(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;
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(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;
(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.
28. Proviso to Section 49(5) ensures a clear and defined
order of priority for utilizing input tax credits, preventing
cross- utilization between different tax components. As
delineated in the prescribed order of utilization, IGST
credits are permissible for the settlement of liabilities
arising from CGST and SGST, and conversely. The only
restrictions are that central tax cannot be used for the
payment of state tax or union territory tax, and vice versa.
In the instant case, the noticee availed credit under CGST
and SGST instead of IGST and utilised the same for
payment of GST arising out of outward supplies.
Therefore, based on the interpretation of Section 49(5) and
the specific order of priority for utilizing input tax credits,
the noticee's actions are consistent with the legal
framework.
29. CBIC vide Circular No.192/04/2023-GST dated 17th
July 2023 had given clarification on charging of interest
under section 50(3) of the CGST Act, 2017, in cases of
wrong availment of IGST credit and reversal thereof. With
respect to the calculation of interest under Rule 88B of the
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CGST Rules, it has been clarified in the above circular that
"Since the amount of input tax credit available in
electronic credit ledger, under any of the heads of IGST,
CGST or SGST, can be utilized for payment of liability of
IGST, it is the total input tax credit available in electronic
credit ledger, under the heads of IGST, CGST and SGST
taken together, that has to be considered for calculation of
interest under rule 88B of CGST Rules and for determining
as to whether the balance in the electronic credit ledger
has fallen below the amount of wrongly availed input tax
credit of IGST, and to what extent the balance in electronic
credit ledger has fallen below the said amount of wrongly
availed credit. Thus, in the cases where IGST credit has
been wrongly availed and subsequently reversed on a
certain date, there will not be any interest liability under
sub-section (3) of section 50 of CGST Act if,
during the time period starting from such availment and
up to such reversal, the balance of input tax credit (ITC) in
the electronic credit ledger, under the heads of IGST,
CGST and SGST taken together, has never fallen below the
amount of such wrongly availed ITC, even if available
balance of IGST credit in electronic credit ledger
individually falls below the amount of such wrongly availed
IGST credit. However, when the balance of ITC, under the
heads of IGST, CGST and SGST of electronic credit ledger
taken together, falls below such wrongly availed amount of
IGST credit, then it will amount to the utilization of such
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wrongly availed IGST credit and the extent of utilization
will be the extent to which the total balance in electronic
credit ledger under heads of IGST, CGST and SGST taken
together falls below such amount of wrongly availed IGST
credit, and will attract interest as per sub-section
(3) of section 50 of CGST Act, read with section 20 of
Integrated Goods and Services Tax Act, 2017 and sub-rule
(3) of rule 88B of CGST Page 3 of 3 Rules."
30. The essence of the above clarification is that the input
tax credit (ITC) available in the electronic credit ledger
should be considered as a pool of funds designated for
different types of taxes, such IGST, CGST and SGST. These
accounts represent a wallet with compartments for IGST,
CGST, and SGST funds. Therefore, while determining
interest under rule 88B of the CGST Rules, the entire
wallet has to be taken into consideration, not just
individual compartments. If the total balance (combining
IGST, CGST, and SGST) falls below the amount of the
wrongly availed IGST credit, there is interest liability. If,
however, the total wallet balance never dips below
this specific amount during the relevant period, there's no
interest liability. Similarly, for utilizing the IGST liability,
the clarification emphasizes that the eligibility of funds for
this payment is based on the total balance in the entire
wallet, not just the IGST compartment. In short, the
analogy of the above circular is that the GST system treats
the electronic credit ledger as a unified resource, and
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interest is incurred if, collectively, the available funds fall
below the amount of wrongly availed credit during the
specified period.
31. I adopt the analogy of the above circular
No.192/04/2023- GST dated 17th July 2023 in deciding this
issue. In the instant case, there is no loss of revenue,
either to the Centre or to any State, arising from the
availment and utilization of CGST/SGST instead of IGST. In
view of the above findings, I hold that the noticee is not
liable to reverse the CGST (27,000/-) and SGST (27,000/-)
availed instead of IGST through the GSTR 3B and the
demand of Rs.54,000/- in the Show Cause Notice No. is
liable to be dropped."
8. We have deemed it appropriate to extract the above
findings from the order of the Assistant Commissioner
since we find that it not only represents the correct view of
the procedural law in this regard, but more importantly,
demonstrates that revenue officials, even at the level of
Assistant Commissioner, who are often the first point of
contact between an assessee and the revenue department,
are capable of rendering timely and effective justice in our
country which is known for its huge backlog of cases. At a
time when the justice dispensation system is looking for
ways and means to reduce litigation generally, and
especially in the field of taxation where delays can affect
the nation's economy, orders such as the one extracted
above come as a welcome breath of fresh air, and are to be
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duly appreciated and encouraged. It needs no gainsaying
that an expeditious disposal of cases, especially those
involving procedural aspects of taxation, is the need of the
hour so as to ensure fairness and certainty in tax
administration."
4. In the light of the principles laid down by this Court in
the aforesaid judgment, the impugned order needs to be
reconsidered to find out whether the irregularities highlighted
against the petitioner pertained to the availing of input tax credit
under wrong heads.
In such circumstances, this writ petition is disposed of
quashing Exts.P1 and P2 with a direction to the 1 st respondent to
pass fresh orders, after giving the petitioner a reasonable
opportunity of being heard. A decision in this regard shall be
taken strictly by complying with the principles laid down in Ext.P3
judgment, within a period of three months from the date of receipt
of a copy of this judgment.
Sd/-
ZIYAD RAHMAN A.A.
JUDGE
DG/9.6.25
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APPENDIX OF WP(C) 14998/2025
PETITIONER EXHIBITS
Exhibit P1 TRUE COPY OF THE ORDER OF THE 1ST
RESPONDENT DATED 16.12.2023
Exhibit P1(a) TRUE COPY OF THE SUMMARY OF THE ORDER IN
FORM GST DRC -07 DATED 16.12.2023
Exhibit P2 TRUE COPY OF THE APPELLATE ORDER SO
PASSED IN RESPECT OF THE PETITIONER DATED
25.03.2024
Exhibit P3 TRUE COPY OF THE JUDGMENT DATED
26.11.2024 IN W.A. NO. 54/2024 (REJIMON
PADICKAPARAMBIL ALEX VS. UNION OF INDIA &
ORS) OF THIS HON'BLE COURT
