2022 (3) TMI 1484 - HC - GST

Petition dismissed seeking IGST adjustment towards CGST and SGST obligations under Section 19(1) IGST Act

The Telangana HC dismissed a petition seeking direction for adjustment of IGST paid towards CGST and SGST obligations. The court held that directing such ... Adjustment of IGST with CGST and SGST not permissible - refund of integrated tax under Section 19(1) of the IGST Act - tax wrongfully collected and paid - no interest on central tax and state tax where IGST paid is subsequently held to be intra state supply - procedure for sanctioning refund under the Refund Rules and CGST Rules - compliance with show cause notice pending refundAdjustment of IGST with CGST and SGST not permissible - procedure for sanctioning refund under the Refund Rules and CGST Rules - Whether the petitioner can seek direct adjustment of IGST paid towards discharge of CGST and SGST liabilities - HELD THAT: - The Court held that permitting adjustment of IGST paid by the petitioner with CGST and SGST would amount to adopting a procedure not provided under the statutory scheme and would go beyond the statute. The statutory framework contemplates refund mechanisms where tax has been paid under an incorrect head: Section 19(1) of the IGST Act provides for grant of refund of integrated tax paid on a supply considered inter state but subsequently held to be intra state, and the Refund Rules along with the CGST Rules prescribe the procedure for sanctioning such refunds. Consequently, the relief of direct adjustment was declined as impermissible. [Paras 22]Relief of adjusting IGST against CGST and SGST refused; petitioner must follow refund procedure under the IGST Act and applicable rules.Tax wrongfully collected and paid - refund of integrated tax under Section 19(1) of the IGST Act - compliance with show cause notice pending refund - no interest on central tax and state tax where IGST paid is subsequently held to be intra state supply - Whether the petitioner must comply with the show cause notice by paying CGST and SGST and whether it may claim refund of the IGST already paid - HELD THAT: - The Court directed that the petitioner should comply with the show cause notice and pay the CGST and SGST amounts within two months. Simultaneously, the Court recognized the petitioner's entitlement to seek refund of the IGST paid erroneously by filing an application under Section 19(1) of the IGST Act. On receipt of such application, respondents were directed to take up and complete the refund process within two months. The Court also noted the statutory position that where IGST has been paid but the supply is subsequently held to be intra state, the registered person shall not be required to pay interest on the central and state tax payable, as reflected in Sections 77(2) and 19(2). [Paras 25, 26, 27]Petitioner ordered to pay CGST and SGST within two months; petitioner permitted to apply for refund of IGST under Section 19(1); respondents to process refund application within two months of its receipt.Final Conclusion: Writ petition dismissed: direct adjustment of IGST against CGST/SGST refused; petitioner must pay the CGST and SGST called for in the show cause notice within two months, may file a refund application under Section 19(1) of the IGST Act, and respondents are directed to decide any such refund application within two months of receipt. Issues:1. Quashing of show cause notice dated 23.01.20212. Adjustment of Integrated Goods and Services Tax (IGST) paid towards Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) in TelanganaAnalysis:Issue 1: The petitioner sought the quashing of a show cause notice dated 23.01.2021, issued by respondent No.5. The petitioner contended that due to inadvertence in its IT system, it erroneously paid IGST instead of CGST and SGST for transactions within Telangana, causing substantial revenue loss. The respondents argued that the petitioner should seek a refund of the IGST paid, as per the provisions of the IGST Act and Refund Rules. They emphasized that adjusting IGST with CGST and SGST was not provided for in the statutes.Issue 2: The Court referred to relevant sections of the CGST Act and IGST Act regarding the refund of taxes paid erroneously. It noted that adjustment of IGST with CGST and SGST was not a prescribed procedure. The Court cited a decision of the Jharkhand High Court where a petitioner was directed to pay the correct tax amount and was entitled to a refund for the erroneous payment. Ultimately, the Court directed the petitioner to pay the CGST and SGST amount as per the show cause notice and allowed the petitioner to apply for a refund of the IGST amount paid mistakenly. The Court instructed the authorities to process the refund application promptly.In conclusion, the Court dismissed the writ petition, directing the petitioner to pay the correct taxes and apply for a refund of the erroneously paid IGST amount. The judgment highlighted the importance of adhering to statutory procedures for tax payments and refunds, emphasizing compliance with tax laws to prevent revenue losses and ensure proper tax administration.