TaxTMI 
TaxTMI 
2026 (10) TMI 627
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....ST dated 30.06.2023. 2.0 The Appellant assails the impugned OIA on the grounds that it fails to appreciate Section 9 and Section 49 of the CGST Act, 2017, which mandate the deposit of tax under specific tax heads. Furthermore, the impugned OIA proceeds on an incorrect interpretation of the CBIC Circular No. 26/26/2017-GST dated 29.12.2017. Brief Facts of the case 3.1 The Respondent is a partnership firm engaged in the business of sales and service of motor vehicles and its parts. They are situated in Ballari, Karnataka and registered under GST with GSTIN 29AACFM3427B1ZN. 3.2 During the course of audit on the records of the Respondent undertaken by the officers of Audit Circle, Ballari, for the period July 2017 to March 2018 it was observed that they have paid tax attributed to credit notes received for the months of September-2017, October-2017 and November-2017 in GSTR-3B of respective months instead of reversing ITC as below: Tax paid for credit notes received Taxable Value CGST SGST IGST September 2017 667567 186919 October 2017 363456 4200 4200 93368 November 2017 9458873 349344 349344 1949797....
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....83/-, The amount confirmed is Rs 45 more than the amount proposed in the notice) under Section 73(1) along with interest and penalty under Section 50 and 73(9) of the Act. The Order relied on the procedure prescribed in the CBIC Circular No. 26/26/2017-GST dated 29.12.2017. Although the order found the Respondent in violation of Section 9 of the CGST Act and Section 5 of the IGST Act, it held that neither Section 19(1) of the IGST Act nor Section 77(2) of the CGST Act, 2017 applies to this matter. 3.8 The Respondent preferred an appeal before the First Appellate Authority against the Order of the Adjudicating Authority. The Appellate Authority passed the impugned order and set aside the order passed by the Adjudicating authority mainly on the following grounds: (i) While making the reversal of ITC for the months Sept-Nov 2017 and setting right the excess Output tax through GSTR-3B filed in the month of Dec 2017 the excess paid IGST of Rs. 22,30,083/- could not be reduced. Accordingly, the Respondent adjusted the said taxes from the CGST and SGST heads. (ii) The Respondent receives ITC under IGST head predominantly and has outward liability predominantly under t....
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....horised Representative for the Appellant Department and Shri Rajesh Kumar T R Chartered Accountant appeared virtually on behalf of the Respondent. Submissions by the Appellant: 4.1 The Ld Assistant Commissioner AR appeared for the Appellant and submitted as follows: 4.2 Order-in Appeal No. BGM-JJ-ADC-42-2024-25-GST Dated 30.09.2024 passed by the Additional Commissioner (Appeal), Belagavi, is not proper and legal. The Respondent had wrongly availed the input tax credit for adjustment in CGST and SGST instead of IGST. The OIA failed to apply Section 9 and Section 49, which mandate payment in specific heads. There is no provision in the CGST Act allowing a taxpayer to "offset" IGST overpayment against CGST/SGST liability via GSTR-3B. The Circular 26/26/2017 allows adjustments within the same head in future months, not across different heads. As per Section 54, the only remedy for overpayment is a refund claim, which the Taxpayer failed to file. Interest under Section 50 is a statutory attachment for any short payment, regardless of the intent of the taxpayer or overpayment elsewhere. Submissions by the Respondent: 5.0 The Ld Authorised Representative appeared on behalf ....
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....f the law was to allow the IGST for payment of CGST and SGST. c. Further, even with regard to deposit into Cash Ledger, the GSTN provided PMT-09 application to transfer the cash deposited from one head to another head. d. This clearly shows the intention of the law is to allow the taxes deposited under one head can be adjusted to another head. 6.1 Therefore there is effectively no short payment of taxes, thereby there cannot be proceedings and demand under Section 73 of CGST/SGST Act, 2017 6.2 Response to the Written submission was submitted by the Appellant vide reply dated 23rd Sept 2026. The para wise reply is as below: (i) It is undisputed that the Respondent had made payments under the IGST head during the earlier months and the taxpayer itself admitted that the amount of Rs. 22,30,083/- was adjusted against CGST and SGST liability in December 2017. However, the existence of excess payment under the IGST head did not automatically amount to payment of the corresponding CGST and SGST liabilities. Thus, the relevant question is whether such unilateral cross-head adjustment was permissible under the statutory mechanism. (ii) In reply to t....
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....utomatically be applied to validate the present unilateral adjustment. The specific question in the present appeal is whether the taxpayer was legally entitled to reduce CGST and SGST liability in its December 2017 GSTR-3B by the amount of excess IGST paid in earlier months. (ix) The principle of revenue neutrality cannot by itself override the statutory mechanism for levy, collection, accounting and payment of CGST, SGST and IGST. Revenue neutrality may be a consideration in appropriate circumstances, but it cannot create a substantive entitlement to make an adjustment which is otherwise not authorised by the statutory return/payment mechanism. (x) A subsequent or prospective IGST liability cannot automatically validate a past reduction of CGST/SGST liability. Tax liability was required to be correctly reported and discharged for the relevant tax period in accordance with law. (xi) Once it was established that the CGST and SGST liabilities remained unpaid under the respective heads during the relevant period, the consequential liability to interest had to be determined in accordance with Section 50. (xii) The penalty was consequential to the det....
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.... legal position that the adjudication order that goes beyond the demand proposed in the notice could be considered as erroneous. This issue has not been taken up by the Respondent at any stages. We therefore consider this mistake of the Department as an oversight while issuing the notice at the initial stages of GST, and therefore condoned. 7.7 We now look at the notice and the Order passed. The notice stated that 'it was observed that the taxable person has paid tax for credit notes received for the months of sep-17, oct-17 & nov-17 in GSTR-3B of respective months instead of reversing ITC'. There was no legal support for this statement. 7.8 We have examined the provisions related to issue of credit notes and adjustment in the hands of the recipient of credit note during the period July 2017 to March 2018. 7.9 Section 34 of the Act deals with Credit and Debit notes, which stands during the year 2017-18 as follows: 34. Credit and debit notes.- (1) Where a tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such su....
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....13 The First proviso to Section 34 stands amended by way of substitution with effect from 01.10.2025 to read: Provided that no reduction in output tax liability of the supplier shall be permitted, if the- (i) input tax credit as is attributable to such a credit note, if availed, has not been reversed by the recipient, where such recipient is a registered person; or (ii) incidence of tax on such supply has been passed on to any other person, in other cases. 7.14 The mandatory requirement linking the supplier's output tax reduction directly to the recipient's compulsory reversal of Input Tax Credit (ITC) upon the issuance of a credit note officially came into effect on 1st October 2025 as introduced vide Section 126 of the Finance Act (No. 7) 2025 and operationalised through Notification No. 16/2025-Central Tax dated 17.09.2025. It means that during the period 2017-18 there was no mandatory provision under the GST law for reversal of Input Tax Credit by the recipient upon the issuance of a credit note by the supplier. Rule 37, however, deals with the non-payment of value of such supply along with the tax payable thereon within 180 days from the date ....
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....lue of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, the recipient shall be liable to pay such amount equal to the input tax credit availed by the recipient by way of adding to his output tax liability along with applicable interest. 7.17 In the case on hand Respondent received Credit notes in the months of Sept-2017, Oct-2017 & Nov-2017. Initially they had added amount equivalent to the tax involved in the credit notes to the output tax liability and paid. In the month of December 2017, thinking that the payment through output tax liability was an error in their hand and reversed an amount equivalent to the tax involved in the credit notes received during from Sept-2017, Oct-2017 & Nov-2017 from the ITC available in Electronic credit Ledger. Consequently, they had accounted the tax paid during Sept-2017, Oct-2017 & Nov-2017 as excess payment tax in Dec- 17. The Respondent made the adjustment of excess tax against the tax payable in Dec 2017 and reported the net as liability for the month and filed the GSTR-3B. While doing so the excess payment of tax under IGST of Rs. 22,30,083/- was adjusted towards the ....
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....ied that as return in FORM GSTR-3B do not contain provisions for reporting of differential figures for past month(s), the said figures may be reported on net basis alongwith the values for current month itself in appropriate tables i.e. Table No. 3.1, 3.2, 4 and 5, as the case may be. It may be noted that while making adjustment in the output tax liability or input tax credit, there can be no negative entries in the FORM GSTR-3B. The amount remaining for adjustment, if any, may be adjusted in the return(s) in FORM GSTR-3B of subsequent month(s) and, in cases where such adjustment is not feasible, refund may be claimed. Where adjustments have been made in FORM GSTR-3B of multiple months, corresponding adjustments in FORM GSTR1 should also preferably be made in the corresponding months. [Emphasis supplied] 7.22 Two aspects are clear from the above clarification. (i) FORM GSTR-3B do not contain provisions for reporting of differential figures for past month(s) and (ii) the differential figures should be reported on net basis alongwith the values for current month itself in appropriate tables of GSTR-3B. This means that in Form GSTR-3B being a summary Form for purpose of Mo....
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.... (b) such documentary or other evidence (including the documents referred to in section 33 as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person: ........... (5) If, on receipt of any such application, the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund referred to in section 57. ......... (8) Notwithstanding anything contained in sub-section (5), the refundable amount shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to- (a) .......; (b) .......; (c) .......; (d) .......; (e) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person; or (f) the tax or interest born....
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.... for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and restrictions within such time as may be prescribed. (5) The amount of input tax credit available in the electronic credit ledger of the registered person on account of- (a) integrated tax shall first be utilised towards payment of integrated tax and the amount remaining, if any, may be utilised towards the payment of central tax and State tax, or as the case may be, Union territory tax, in that order; (b) the central tax shall first be utilised towards payment of central tax and the amount remaining, if any, may be utilised towards the payment of integrated tax; (c) the State tax shall first be utilised towards payment of State tax and the amount remaining, if any, may be utilised towards payment of integrated tax. [Emphasis supplied] 7.29 It is submitted by the Respondent that during the period July 2017 to March 2018 they have remitted their output tax liability only through the Input Tax Credit available in the Electronic Credit Ledger except for RCM liability. 7.30 The foregoin....
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....and adjusted to the correct head. 7.35 The principle laid out in the decision that 'an assessee should not suffer due to administrative delays or technical misclassifications when there is no loss of revenue' however, may support the Respondent in this case. 7.36 In Ocean E-Mart v. State of U.P. Writ Tax No. 1358 of 2025, the petitioner mistakenly deposited tax under CGST and SGST instead of IGST, and the tax department raised a demand for non-payment of IGST without adjusting the wrong-head deposits. The Honourable Allahabad High Court set aside the demand orders, ruled that paying under the wrong head does not mean tax evasion, and directed authorities to adjust the amount or grant a refund under Section 77 of the CGST Act. 7.37 In Ayiswarya Polymers v. Assistant Commissioner of GST & Central Excise W.P. No. 22814 of 2026 the Honourable Madras High Court considered an issue requirements of a waiver under Section 128A of the Act, wherein the Petitioner deposited the money under IGST instead of CGST/SGST. It was held that it was a curable procedural lapse, not a substantive default and set aside the rejection of the petitioner's waiver application and remanded the matt....