2026 (1) TMI 1487 - HC - GST

Wrongful adjustment of input tax credit between tax heads does not attract recovery proceedings if no revenue loss, petitions quashed.

HC clarified that wrongful application of input tax credit confined to adjustment between tax heads, without causing revenue loss, does not attract ... Wrongful availing or utilization of input tax credit - adjustment of input tax credit between tax heads - initiation of proceedings u/s 73 - HELD THAT:- Case of the petitioner is that, while supplying data in GSTR 3B for January, 2018, the petitioner inadvertently paid IGST input credit, despite the fact that the petitioner was not having any interstate sales. The specific case of the petitioner is that, the wrong application of input tax credit cannot be a ground to initiate proceedings under Section 73 of the CGST Act. Reliance was also placed on the decision rendered by a Division Bench of this Court in Rejimon Padikapprambil Alex [2024 (12) TMI 399 - KERALA HIGH COURT], wherein, this Court, after referring to the relevant statutory provisions, held that, the Section 73 can be attracted only when the tax has not been paid or short paid or erroneously refunded or where input tax has been wrongfully availed or utilized for any reason. If it is a case of adjustment of the input credit in a different head, the proceedings under Section 73 would not be attracted as there is no revenue loss caused. The issue raised in this writ petition is squarely covered in favour of the petitioner as per the decision referred to above. Accordingly, it is ordered that, Ext.P1 shall stand quashed in the light of the principles laid down by this Court in Rejimon Padikapprambil Alex [2024 (12) TMI 399 - KERALA HIGH COURT] Issues: Whether proceedings under Section 73 of the CGST Act are attracted where a registered taxpayer inadvertently or wrongly applied input tax credit under a different head (IGST instead of CGST/SGST) without causing revenue loss.Analysis: The Court examined the scope of Section 73 of the Central Goods and Services Tax Act, 2017 and the circumstances in which it can be invoked. The statutory framework permits action under Section 73 where tax has not been paid or has been short paid or erroneously refunded, or where input tax credit has been wrongfully availed or utilized such that there is a fiscal prejudice. The Court relied on the principle that mere misapplication or adjustment of input tax credit between tax heads, in the absence of any revenue loss or wrongful availment, does not constitute a case fit for initiation of proceedings under Section 73. Where the error is one of classification or head (for example inadvertent use of IGST credit despite no interstate supplies) and does not result in short payment of tax to the revenue, Section 73 is not attracted.Conclusion: Proceedings under Section 73 are not attracted by an inadvertent or incorrect application of input tax credit between tax heads when there is no revenue loss; the assessment order passed under Section 73 in such circumstances is to be quashed. The decision is in favour of the assessee.Ratio Decidendi: Section 73 of the CGST Act, 2017 applies only where tax is unpaid, short paid, erroneously refunded, or input tax credit has been wrongfully availed or utilized causing revenue prejudice; mere misclassification or inadvertent adjustment of input tax credit between tax heads without revenue loss does not attract Section 73.