2026 (1) TMI 1214 - HC - GST

Adjustment of tax liability against input tax credit requires admitted liability; recovery set aside and interest refunded.

Adjustment of tax liability against available input tax credit was scrutinised: Section 75(12) mechanism applies only where a registered person has ... Adjustment of tax liability against the input tax credit available in the credit ledger of the petitioner - requirement of payment of tax to be done, by way of deposit of cash, as the payment of tax, under the reverse charge mechanism - mistake or suppression of information - HELD THAT:- The scheme of Section 75(12) of the GST Act, would show that the liability to tax and the period within which such tax has to be paid, has to be declared by the registered person. In the event of any mistake or suppression of such information, the tax authorities are entitled to initiate proceedings by giving notices to the registered person setting out the discrepancies or deficiencies in the reporting of turnovers, the tax payable on such turnovers and the details of payment of such tax. The respondent authorities, after issuing such notices and after giving appropriate opportunity of hearing, as required under the provisions of the GST Act, are thereafter entitled to pass necessary orders quantifying the tax, late fee, penalty and interest payable on such tax. For this purpose, various provisions including Sections 56, 73 & 74 of the GST Act provide ample power to the authorities. It is only after such an adjudicatory process has been completed that coercive steps under Section 79 of the GST Act can be taken up. In the present case, no such adjudicatory process has been taken up. Section 75(12) of the GST Act permits recovery even without an adjudicatory order where the liability is an admitted liability - the said provision would be available when the registered person files a declaration, in one form or the other, required under Section 39 of the GST Act, setting out the liability of the registered person. Thereafter, the authorities can recover the said tax or collect interest at the prescribed rate, from the date when the tax became due till it is paid. However, this provision would be applicable only when there is a clear cut admission, by the registered person, as to his tax liability - In the present case, the contention of the respondents is that the petitioner had mis-utilized the input tax credit available with the petitioner and had cleared its liability under the reverse charge mechanism by using input tax credit rather than paying the said amounts, by way of cash deposits. The learned Standing Counsel would specifically contend that the petitioner had availed the input tax credit without payment of tax in cash. The contention of the respondents that the provisions of Section 75(12) of the GST Act can be pressed into service would have to be rejected. This is because, the said provision would be available only where the registered person has clearly disclosed a tax liability, in the returns filed under Section 39 of the GST Act, and such tax liability has not been cleared. Wrong usage of input tax credit or otherwise would only entitle the respondent authorities to initiate proceedings under Sections 73 & 74 of the GST Act and the coercive process under Section 75(12) of the GST Act, cannot be used in such situations. This Writ Petition is allowed, setting aside the recovery process, initiated by the respondents, under Section 79(1)(c) of the GST Act, with a further direction to the respondent authorities to refund the interest payments recovered from the banker of the petitioner. Issues: Whether the revenue can resort to coercive recovery under Section 79(1)(c) of the GST Act, 2017 to collect interest and tax alleged to be unpaid on account of misuse of input tax credit, without first completing an adjudicatory process under Sections 56/73/74 of the GST Act; and whether Section 75(12) permits such recovery in the absence of a clear admission of tax liability in returns filed under Section 39.Analysis: The statutory scheme requires that tax liabilities and the periods for payment are to be declared by the registered person and, where discrepancies or misuse of input tax credit are alleged, the authorities must initiate adjudicatory proceedings under the relevant provisions (including Sections 56, 73 and 74) and give opportunity of hearing to quantify tax, interest and penalties. Section 75(12) applies where there is an amount of self-assessed tax declared in returns under Section 39 which remains unpaid; it permits recovery under Section 79 where there is a clear admission of liability in the return. Wrong or improper utilisation of input tax credit does not constitute an admitted tax liability that authorises immediate coercive recovery under Section 79 without prior adjudication. The facts showed no prior adjudicatory order quantifying tax or interest; recovery was effected by invoking Section 79(1)(c) and amounts were collected from the petitioner's banker including alleged interest, without such adjudication.Conclusion: The recovery proceedings initiated under Section 79(1)(c) and the collection of interest from the petitioner's banker are set aside. The respondent authorities are directed to refund the interest payments recovered from the bank. The respondents remain free to initiate appropriate adjudicatory action, if necessary, to determine any claim for interest on delayed payments.