The Bombay High Court on 30 October held that payment of GST under the wrong tax head, without any deliberate attempt to evade tax, does not justify invoking Section 74 of the Central Goods and Services Tax (CGST) Act, 2017, when the amount can be transferred to the correct tax head.
A Division Bench comprising Justices M.S. Karnik and Sandesh D. Patil allowed a petition filed by DHR Holding India Private Limited, holding that the GST department could transfer the tax paid under CGST and SGST to the IGST account instead of initiating recovery proceedings. It observed:
“Taking into consideration the aforesaid provisions of law, the respondents could have transferred the amount under the head 'CGST' and 'SGST' to the head 'IGST'. In no event, it can be said that this is a case where Section 74 of the CGST Act could be invoked.”
DHR Holding India Private Limited facilitates the sale of medical equipment and provides support services to foreign group companies. It had paid GST under CGST and SGST on payments received from its foreign group companies for warranty support services.
Subsequently, the GST department issued a show cause notice under Section 74 of the CGST Act, demanding IGST on the same transactions for the same period.
The company contended that it had already paid the entire GST amount and that the department could adjust the tax paid under CGST and SGST towards IGST instead of demanding payment again.
On the other hand, the department argued that CGST, SGST and IGST were credited to separate government accounts and that it was not legally required to transfer or adjust the amount already paid.
Rejecting this contention, the High Court referred to Section 77 of the CGST Act and Section 19 of the IGST Act, which provide for cases where tax is paid under the wrong head.
It relied on the Supreme Court's decision in Tata Steel Limited v. Union of India, which held that proceedings under Section 74 require the department to establish fraud, wilful misrepresentation or suppression of facts.
Finding no deliberate attempt by the company to evade tax, the Bench held that the department could not invoke Section 74 merely because the company had paid tax under CGST and SGST instead of IGST. It clarified that it had not determined the total IGST payable and that the department remained free to recover any additional tax legally due.
Accordingly, the High Court set aside the GST demand order and directed the department to transfer the amount already paid under CGST and SGST to the IGST account upon an application by the company.
For the Petitioner: Advocate Parth Parikh, instructed by Economic Laws Practice.
For the Respondents: Advocates Maya Majumdar and Niyati Mankad, for the Union of India and the CGST authorities.