Shree Nanak Ferro Alloys (P.) Ltd. VS State of Telangana

The case involves the petitioner Company and the Central Goods and Services Tax (CGST) & Central Excise authorities. The petitioner is challenging a letter dated April 26, 2019, issued by the respondent (CGST & Central Excise authorities), which requires the petitioner to pay a shortfall in Integrated Goods and Services Tax (IGST) amounting to ₹41,98,642, along with due interest within a week. The letter warns that failure to comply will result in appropriate action under the Central Goods & Services Tax Act, 2017, and its accompanying rules to recover the IGST amount and interest.

The petitioner company is registered under both the Central Goods & Services Tax Act, 2017 (CGST Act), and the Integrated Goods and Services Tax Act, 2017 (IGST Act). The dispute pertains to the month of September 2017, shortly after these Acts were implemented. The petitioner filed its GSTR-1, declaring a total Integrated Tax liability of ₹74,51,127 for that month, Central Tax liability of ₹2,68,470, and State Tax liability of ₹2,68,470. However, when the petitioner later submitted its GSTR-3B, the Integrated Tax liability was reported as ₹32,52,484.58 instead of ₹74,51,127, and the Central Tax liability was reported as ₹44,67,113.71 instead of ₹2,68,470. This resulted in a shortfall of ₹41,98,642.42 in the IGST liability.

Heard the learned counsel for the petitioner company and the learned counsel for the CGST & Central Excise.

The petitioner is aggrieved by a letter dated April 26, 2019, issued by respondent No.2, which is attached as Annexure-7 to the writ application. This letter demands the petitioner company to pay a shortfall of IGST amounting to Rs.41,98,642/- along with due interest within one week. Failing to comply would lead to appropriate action under the Central Goods & Services Tax Act, 2017, and the associated rules for recovery of the IGST amount along with interest.

The petitioner is a company registered under the Central Goods & Services Tax Act, 2017 (CGST Act) and the Integrated Goods and Services Tax Act, 2017 (IGST Act). The dispute pertains to September 2017, soon after these Acts were implemented. The petitioner filed its GSTR-1 for that month, indicating a total Integrated Tax liability of Rs.74,51,127/-, Central Tax liability of Rs.2,68,470/-, and State Tax liability of Rs.2,68,470/-. However, in its GSTR-3B, the Integrated Tax liability was incorrectly shown as Rs.32,52,484.58/- instead of Rs.74,51,127/-, and the Central Tax liability was shown as Rs.44,67,113.71/- instead of Rs.2,68,470/-. This resulted in a shortfall of Rs.41,98,642.42/- in the IGST, while there was an excess payment of Rs.41,98,643.71/- in the CGST.

This discrepancy went unnoticed for about a year until November 1, 2018, when the petitioner was informed via letter, attached as Annexure-3, that during an audit by CERA, it was observed that the petitioner had short paid Integrated tax by Rs.41,98,842/-. Consequently, the petitioner was asked to make the payment along with interest.

The petitioner responded on November 19, 2018, with a letter attached as Annexure-4, explaining that the IGST amount of Rs.41,98,643/- had indeed been paid but was inadvertently categorized under CGST instead of IGST. The petitioner argued this was not a case of short payment but rather a misclassification, which occurred due to the early implementation phase of GST. The petitioner requested an adjustment of the amount to the correct tax head. However, this request was denied, and by the letter dated April 26, 2019, the petitioner was again asked to deposit the IGST amount along with interest, leading to the current writ application.

The learned counsel for the petitioner contended that there was no short payment of tax; instead, the tax was paid under the wrong head (CGST) instead of IGST. The payment was made on time, and the mistake was a bona fide error during the early phase of the GST regime. The counsel emphasized that the error arose because the petitioner company had inadvertently classified the transaction as intra-State supply in their GSTR-3B return, whereas it was actually an inter-State supply. The petitioner’s detailed reply to the letter dated November 19, 2018, is included as Annexure-6, which indicates that while filing GSTR-1, the company was aware of the nature of the outward supply being inter-State. However, an error was made during the GSTR-3B filing.

In the case at hand, the court heard arguments from the counsel representing both the petitioner company and the CGST & Central Excise. The petitioner, a company registered under the Central Goods & Services Tax Act, 2017 (CGST Act), and the Integrated Goods and Services Tax Act, 2017 (IGST Act), is contesting a letter dated April 26, 2019, issued by respondent No.2. This letter, included in Annexure-7 of the writ application, demands the company pay Rs. 41,98,642/- in short-paid IGST along with interest within a week, failing which recovery actions under the CGST Act and its Rules would be initiated.

The issue arose from the company’s filings for September 2017, shortly after the GST regime’s implementation. The company’s GSTR-1 filing listed an Integrated Tax liability of Rs. 74,51,127/-, a Central Tax liability of Rs. 2,68,470/-, and a State Tax liability of Rs. 2,68,470/-. However, in their subsequent GSTR-3B filing, the Integrated Tax liability was incorrectly reported as Rs. 32,52,484.58/-, while the Central Tax liability was overstated at Rs. 44,67,113.71/-. This mistake resulted in an underpayment of IGST by Rs. 41,98,642.42/- and an equivalent overpayment of CGST. This error went unnoticed for about a year until it was identified during a CERA audit, prompting the demand for the short-paid IGST along with interest.

In response, the petitioner company clarified via a letter dated November 19, 2018 (Annexure-4), that the IGST amount was indeed paid but mistakenly classified under CGST. They argued that this was an error due to the nascent stage of the GST implementation and requested the amount be reallocated to the correct head. The request was denied, and the demand for the IGST payment was reiterated in the April 2019 letter, leading to the current writ petition.

The petitioner’s counsel argued that the tax was not short-paid but rather misclassified, emphasizing that the mistake was a bona fide error in the early GST implementation phase. They contended that the company had misclassified an inter-State supply as an intra-State supply in their GSTR-3B. They further noted that the company had deposited Rs. 43,61,043/- in its electronic cash ledger to cover the IGST, which demonstrates a lack of intent to evade tax.

The petitioner’s counsel also referenced Section 77 of the CGST Act and Section 19 of the IGST Act, asserting that these provisions entitle a registered person to a refund of Central tax paid on transactions initially considered as intra-State but later recognized as inter-State. Additionally, these sections exempt the petitioner from paying interest on the IGST due to the misclassification.

Moreover, the counsel pointed to Rule 92 of the CGST Rules, which provides for adjustments of taxes wrongly paid under one head to be corrected under the appropriate head, a facility that was denied to the petitioner. The petitioner expressed readiness to pay the IGST if directed, while simultaneously seeking a refund or adjustment of the overpaid CGST against future liabilities.

The summary encapsulates the petitioner company’s contention that the tax was not short-paid but erroneously paid under the wrong head due to initial implementation confusion, their compliance with the tax payment requirement, and their appeal for correction without the imposition of interest or further penalties, referencing relevant provisions from the CGST and IGST Acts and Rules.

In this legal case, the petitioner company argues that it should not be liable for any interest payments. On the other hand, the learned counsel for the Central Goods and Services Tax (CGST) department opposes this claim, presenting several key points to support their stance.

Firstly, the CGST counsel refers to a letter dated April 5, 2019, attached as Annexure-6 in the writ application. This letter indicates that the petitioner accurately submitted GSTR-1, categorizing the supply as inter-State and declaring the Integrated Goods and Services Tax (IGST) liability as Rs. 74,51,127/-. Additionally, the petitioner correctly listed both the Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) liabilities as Rs. 2,68,470/- each. The counsel argues that this filing shows the petitioner was fully aware of the inter-State nature of the supply. However, when filing GSTR-3B, the petitioner intentionally underreported their IGST liability as Rs. 32,52,485/- and overstated the CGST liability as Rs. 44,67,114/- for reasons only known to the petitioner.

Secondly, the CGST counsel asserts that there is no provision allowing the transfer, adjustment, or utilization of paid tax from one head to another. This makes the petitioner’s request infeasible. The counsel also references Article 269-A of the Constitution of India, highlighting that while the Central Government collects IGST, it includes a portion of tax owed to the respective state. Therefore, by overpaying CGST, the petitioner deprived the concerned state of its due share, justifying the interest liability.

Thirdly, the CGST counsel draws attention to Section 49(3) of the CGST Act, which stipulates that funds in the ‘electronic cash ledger’ can be used only for payments under the CGST Act. Unlike the ‘electronic credit ledger’ described in Sections 49(4) and (5), which allows for cross-utilization of credits for IGST, CGST, and SGST, the ‘electronic cash ledger’ does not permit such adjustments. Since the petitioner used the ‘electronic cash ledger’ for payment, no adjustment between CGST and IGST is possible.

In summary, the CGST counsel argues that the petitioner’s actions were intentional and that the legal provisions do not support the petitioner’s request for tax adjustments, thereby justifying the interest liability.

In this case, the learned counsel for the petitioner Company argues that no interest is payable by the petitioner. Conversely, the learned counsel for the Central Goods and Services Tax (CGST) department opposes this claim, drawing attention to a letter dated April 5, 2019 (Annexure-6 of the writ application). The letter indicates that the petitioner correctly submitted GSTR-1, identifying the supply as inter-State and acknowledging an Integrated Goods and Services Tax (IGST) liability of Rs. 74,51,127/-, a Central Goods and Services Tax (CGST) liability of Rs. 2,68,470/-, and a State Goods and Services Tax (SGST) liability of the same amount. Despite this, the petitioner allegedly filed GSTR-3B showing an IGST liability of only Rs. 32,52,485/- and a CGST liability of Rs. 44,67,114/- for reasons unexplained.

The CGST counsel further asserts that there is no legal provision allowing for the transfer, adjustment, or utilization of taxes paid under one head for another head. They reference Article 269-A of the Indian Constitution, which involves the collection of IGST by the Central Government, including the share of the applicable State. Therefore, an incorrect filing deprives the State of its due share, necessitating the imposition of interest.

Additionally, the CGST counsel highlights Section 49(3) of the CGST Act, which states that amounts in the electronic cash ledger can only be used for payments under the CGST head, unlike the electronic credit ledger which allows for payments under different heads (Section 49(4) and (5)). Since the petitioner paid through the electronic cash ledger, the tax cannot be adjusted from CGST to IGST.

Moreover, the CGST counsel argues that Sections 77 of the CGST Act and 19 of the IGST Act, which permit adjustments in cases of bona fide errors, are inapplicable here due to the deliberate nature of the petitioner’s incorrect filings. Furthermore, Rule 92 of the CGST Rules, which allows for adjustments against outstanding demands, is not applicable since both the CGST Act and IGST Act were enacted simultaneously, meaning there was no pre-existing law under which adjustments could be made.

In summary, the CGST counsel concludes that there is no basis for adjusting the petitioner’s CGST payments to IGST, and the resulting deprivation of the State’s tax share justifies the imposition of interest on the petitioner.

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