ADMISSION OF WRONGLY AVAILMENT OF INPUT TAX CREDIT

Input means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.

The term ‘input service’ denotes any service used or intended to be used by a supplier in the course of furtherance of business.

Input tax in relation to a registered person, means the Central Tax, State Tax, Integrated Tax or Union territory tax charged on any supply of goods or services or both made to him & includes-

• the integrated goods and services tax charged on import of goods;
• Central Goods and Services Tax;
• State Goods and Services Tax;
• Union Goods and Services Tax;
• Tax payable under Reverse charge means;

but does not include the tax paid under the composition levy.

Input Tax Credit or ITC is the tax that a business pays on a purchase and. that it can use to reduce its tax liability when it makes a sale. In other words, businesses can reduce their tax liability by claiming credit to the extent of GST paid on purchases.

The input tax credit is credited in the electronic credit ledger which amounts to availing of input tax credit. The said amount, if eligible, may be adjusted by the tax payer against the amount meant for payment to the credit of exchequer of the Government.  This amounts to utilisation of input tax credit.

Interest and penalty will not be imposed if the input tax credit is wrongly availed but not utilised. But if the input tax credit is wrongfully utilised then the taxable person is liable to pay interest and penalty under the provisions of the Act.

If the taxpayer accepted the wrongful availment and utilisation of the input tax credit there will be no penalty imposable on the taxable person as held in M/s Shivam Enterprise Versus The State of Bihar through The Principal Secretary, State Tax, (Department of State Tax) Bihar, Patna, The Principal Secretary Cum Commissioner, Department of State Taxes, Government of Bihar, Patna, Joint Commissioner of State Tax, (Department of State Taxes), Assistant Commissioner of State Tax, (Department of State Taxes), The Union of India, The Government of India - 2025 (8) TMI 983 - PATNA HIGH COURT.

In the above said case,  a summary of the show cause notice was issued to the petitioner by the Department in the Form GST-DRC-01 and uploaded on the GST Portal in the ‘Additional Notices Column’. The Notice directed the petitioner to submit its reply on or before 08.07.2019.  The Authority fixed the hearing date on 08.07.2019 itself.  The Department also uploaded a reminder in the ‘Additional Notices Column’ on 03.08.2019.  In the said notice the personal hearing was fixed on 16.08.2019 which is the date fixed by the Department for filing reply by the petitioner to the Department.

The Adjudicating Authority passed an order demanding tax, interest and penalty to the tune of Rs.4,53,833/- under the GST Act for the period from July 2017 to March 2018. The petitioner filed a writ petition against the said order before the High Court.  The petitioner submitted the following before the High Court-

• The last date of filing reply and fixing the date of hearing on the same day is not in consonance with the provisions of the Act and the Rules.
• The show cause notice was not signed digitally which is in violation of Rule 26(3).
• Without giving proper opportunity of being heard the impugned order has been passed which is in violation of Section 75(4) of the Act.

The Department submitted the following before the High Court-

• The writ petition has been filed on frivolous ground by mentioning erroneous facts which are misleading.
• A demand notice has been issued to the petitioner only after the acceptance of the petitioner by way of online submission that the he had wrongly availed transitional credit under SGST head amounting to Rs.3,45,120/-.
• Therefore, the grievance of the petitioner that the notices were uploaded under the heading ‘Additional Notices’ is of no significance.
• The online order was passed by the Assessing Officer through the Common portal on 19.08.2019 and after affixing digital signature, summary of demand in Form GST DRC – 07 as prescribed under Rule 142(5) was issued electronically which is a system generated demand in the prescribed form.
• There is no dispute as to the service of the notice and the order has been passed on the acceptance made by the petitioner, therefore, it cannot be said to have been passed in violation of the principles of Natural Justice.
• The Proper Officer has only imposed interest of Rs.1,08,713/- for wrong availment of the input tax credit which is in consonance with the provisions of the Act under Section 50(3) of the Act. 
• The petitioner has wrongly and incorrectly pleaded that the penalty has been imposed in its case.

To the above averments of the Department, the petitioner submitted that the representative of the petitioner has committed a mistake.  The petitioner further submitted that there was an inadvertent error in drafting and the petitioner’s representative instead of countering the show cause notice submitted incorrectly because he was not well versed with the drafting and he was not sure with the facts as well.

The High Court considered the submissions of both the parties.  The High Court observed that  the order passed by the proper officer is based on the acceptances of fact by the petitioner that they had wrongly availed and utilised the input tax credit during the year 2017-18, the High Court need not go into the issue of service of notice in the present case for a simple reason that the petitioner  had already submitted its reply before the proper officer which has been taken into consideration  while passing the impugned order. 

The High Court considered another submission that the petitioner for not giving mandatory personal hearing under Section 75(4) of the Act.  The High Court observed that the notice is required to be given if any adverse order was contemplated against it.  Therefore, the High Court found that the plea of the petitioner is not based on the foundations laid down in the writ application.  There is no denial on the part of the petitioner that pursuant to the show cause notice, the petitioner has filed its reply through its representative accepting the wrong availment of input tax credit.  Even while filing the writ petition, the writ petitioner did not take a plea that its representative committee the fault.  Only in the rejoinder only it mentioned that its representative has no knowledge on the provisions of the Act. The High Court found that there was no basis for the petitioner to stand and the statements alone are not inspiring the confidence of the Court.

The High Court found that no penalty has been imposed by the Proper Officer on the petitioner.  Therefore, the High Court did not find reason to exercise its power of judicial review on the facts of the case.  The High Court dismissed the writ petition.