Tax Liability Paid through Credit Instead of Cash as per Rule 86B

[ROHIT GOEL]

In a case where the tax liability was mandatorily required to be discharged in cash in accordance with Rule 86B, but was inadvertently paid through utilization of Input Tax Credit (ITC), and this irregularity has subsequently been identified during a departmental audit, whether the taxpayer is eligible to claim a refund of the tax amount earlier paid through credit, after the same liability has been correctly discharged in cash in compliance with Rule 86B?

[Sadanand Bulbule]

ITC once utilised cannot be refunded as it is not paid in cash. Refunds of ITC are allowed only  in specified circumastances like Zero rated supplies and Inverted Duty Structure defiined under the Act.

[Sadanand Bulbule]

There is a possiblity of excess payment of tax and re-credit of such amonut to ITC ledger, if the Proper Officer sanctions the refund in RFD-06. Try it.

[Sadanand Bulbule]

Plz  refer CBIC Circular 174/06/2022-GST: Released on July 6, 2022. 

[KASTURI SETHI]

 Refund on the ground of excess payment of tax by way of re-credit is allowed provided that it is not time barred.  I agree with the reply of Sh.Sadanand Bulbule, Sir at serial no.1.1.

[ROHIT GOEL]

Dear sir,

What would be considered as relevant date in case of such refund? Tax was paid via ITC in FY 2021-22 and FY 2022-23 and tax was paid in cash again in June 2025. Now, deptt has issued SCN proposing to reject refund as time barred by taking relevant date as date of payment by ITC. Are there decisions which say that deptt cannot retain doubly paid tax in GST/Excise/ST regime even though refund limitation has expired.

Any suggestions would be welcome.

[Shilpi Jain]

When tax liability is discharged through cash ledger, the earlier utilised ITC would be excess tax payment which can either be adjusted against future liabilities or claimed as refund. No tax can be retained by Govt. withouth authority of law.

[ROHIT GOEL]

Dear mam,

What would be considered as relevant date in case of such refund? Tax was paid via ITC in FY 2021-22 and FY 2022-23 and tax was paid in cash in June 2025. Now, deptt has issued SCN proposing to reject refund as time barred by taking relevant date as date of payment by ITC. Are there decisions which say that deptt cannot retain doubly paid tax in GST/Excise/ST regime even though refund limitation has expired.

Any suggestions would be welcome.

[KASTURI SETHI]

In this situation, cause of action is the date of payment of GST in cash. Hence relevant date would be June, 2025. The expression, cause’ of action has not been defined in CGST Act. So you can take shelter of various judgments of Supreme Court on the issue, "What is cause of action ?"

Here payment of GST in cash is the cause and the effect is excess payment or double payment.

[KASTURI SETHI]

For more clarification on the issue of “Cause of Action” go through an article titled, as “ARTICLE 141 OF THE CONSTITUTION OF INDIA — CAUSE OF ACTION” authored by Sh. Manoj Kuma Jha, Superintendent CGST [Published in 2019 (366) E.L.T. A142.

This article is based on the judgements of Hon’ble Supreme Court and legal dictionary.

[Sadanand Bulbule]

Dear Sirji

Really empirical reply.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, Thanks a lot for your validation of my reply.

[KASTURI SETHI]

In continuation of my above replies, also study the "Cause and Effect Theory" coined by David Hume. The author has explained the relationship between "cause and effect" with examples.

AI Summary

Input Tax Credit refund: excess tax paid by credit may be claimed after cash discharge if not time-barred.
Whether tax paid through utilisation of Input Tax Credit despite a mandatory cash-discharge requirement can be refunded after the liability is later discharged in cash depends on two points: ITC is generally non-refundable except in specified circumstances, but a subsequent cash payment may create an excess or double payment which can be adjusted or claimed as a refund (including by re-credit) if not time-barred and subject to procedural sanction. The relevant date for limitation is argued to be the date of the cash payment, i.e., the cause of action.