ITC Excess Claimed but No Revenue Loss to Government (FY 2019–20)

[Tushar Malik]

Dear Members,

One of our clients by mistake claimed more ITC in FY 2019–20, but at the same time, he also paid extra tax in GSTR-3B compared to GSTR-1 for the same period. So, there is no loss to the government, and there was no bad intention behind it.

We are in the process of replying to a Show Cause Notice issued under Section 74 of the CGST Act.

If anyone has dealt with a similar case or has any relevant High Court/Tribunal judgments supporting the view that penalty should not be imposed where there is no revenue loss and no fraud, please share.

Thanks in advance!

[Sadanand Bulbule]

Plz refer the following:

General disciplines related to penalty.

Section 126. (1) No officer under this Act shall impose any penalty for minor breaches of tax regulations or procedural requirements and in particular, any omission or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence.

So if there is no fraudulent intent, no gross negligence, and the mistake is procedural, penalty may be avoided, especially if there is no revenue loss. You need to convince the authority with cogent documents.

Case law:

M/s. Hindustan Steel Ltd Vs. State of Orissa [1978 AIR 1548]. (This is under pre-GST law, but often cited).

[Padmanathan KV]

Section 126 does not apply to penalty under section 74. Pls see Section 126(6) of the Act.

[KASTURI SETHI]

Dear querist,

"One of our clients by mistake claimed more ITC in FY 2019–20, but at the same time, he also paid extra tax in GSTR-3B compared to GSTR-1 for the same period. So, there is no loss to the government, and there was no bad intention behind it."

Your approach is not correct. Two issues are involved. Excess claim of ITC and Excess payment of GST. Both are different issues. Excess ITC taken should be reversed along with interest (ITC must have been used by now) and claim refund for tax paid in excess. This is the right procedure de jure.  

You cannot intermingle both issues and take the plea that there is no revenue loss. A tax payer cannot self-adjust on ones own volition. Proper procedure has to be followed.

I am not doubting the intention of your client but your client will have to prove his innocence. Burden of proof is cast upon the tax payer who avails ITC under Section 155 of CGST Act.

Regarding the case laws on the ground of no-revenue-loss, there is a plethora of judgments available.

[KASTURI SETHI]

Suppose excess ITC taken has been utilised, then the loss of revenue (interest) has been caused. In that situation, there will be no use of tracing out case laws on the issue of "no revenue loss has been caused".

[Alkesh Jani]

Shri Kasturiji Sir,

I agree with your views, just to add that ITC if utilized will be treated as loss to the revenue. ITC is vested right but if taken legitimately, in simple language by adhering to conditions and restriction if any, also by following the proper procedure known to law.

Thanks

With Regards 

[Shilpi Jain]

Take a stand that the excess paid GST should be regarded as payment of the excess ITC taken.

[Padmanathan KV]

Assuming that the excess payment is in same head as excess ITC availed, you can take a stand that such excess payment should be treated as ITC reversal. Claiming refund of excess payment and reversal of ITC excess availed is only procedural, and in substance if there is no loss of revenue you can expect some relief at the Appeal stage.

Also, invocation of section 74 does not seem to be proper since there has be fraud, willful-misstatement or suppression of fact with intend to evade tax. This may also be contested.

[Tushar Malik]

Thank you everyone for taking out time to respond to my queries. I truly appreciate your support and valuable inputs. Your guidance really helped me gain clarity. Grateful for your time and effort!

[KASTURI SETHI]

I am afraid to say so.Truly, honestly and sincerely speaking, I foresee  no positive response from the department on such adjustment.

Fat chance.

AI Summary

Excess Input Tax Credit: reversal with interest and procedural refund required; absence of fraud may mitigate penalty exposure.
Excess claim of Input Tax Credit must be reversed with interest if utilized, and any excess tax paid should be pursued by refund through proper procedure; an offsetting excess payment does not substitute for required reversal. Invocation of fraud-targeted provisions can be contested where there is no fraudulent intent or gross negligence, but the taxpayer carries the burden of proof to establish entitlement and procedural compliance. Procedural correction, documentary evidence, and demonstrating absence of revenue loss may mitigate penalty exposure though relief depends on strict adherence to statutory processes.