Madras High Court Directs GST Authorities To Adjust Tax Paid Under Wrong Head Instead Of Seeking Fresh Payment

The Madras High Court has directed the GST authorities to adjust tax already paid under the wrong tax head instead of requiring the taxpayer to make a fresh payment before claiming a refund.

It held that a taxpayer who has discharged the entire tax liability within time cannot be penalised merely because the amount was inadvertently deposited under the wrong GST head.

Justice Senthilkumar Ramamoorthy disposed of the writ petition filed by SYA Homes and set aside the rectification order to the extent it required the petitioner to first pay CGST and SGST dues before seeking a refund of the amount paid under IGST.

The dispute arose after the petitioner, while filing its GSTR-3B return for September 2021, mistakenly paid its entire GST liability of ₹5.84 lakh under the IGST head instead of apportioning it equally between CGST and SGST.

The GST Department subsequently directed the petitioner first to pay the CGST and SGST liability and thereafter seek a refund of the IGST amount. The petitioner's bank account was also attached to recover the alleged dues.

Before the High Court, the petitioner contended that the entire tax liability had already been discharged within the prescribed time and that the error was only in selecting the wrong tax head. It requested the authorities to transfer the amount already paid towards the correct heads.

The Department relied on Section 19 of the IGST Act, read with Rule 89(1A) of the CGST Rules, contending that the petitioner was required to first discharge the CGST and SGST liabilities and then apply for a refund of the IGST amount.

Rejecting the Department's stand, the High Court held that the statutory provisions relied upon apply only where a transaction is wrongly treated as an inter-State or intra-State supply, and not where tax is merely deposited under the wrong head.

"....the provision applies in a case where a registered person pays integrated tax on a supply considered by him to be an inter-State supply which is subsequently determined to be an intra-State supply. In that circumstance, he is entitled to refund of the integrated tax. Section 77 is the corresponding provision under the CGST Act. Rule 89 (1A) was framed for the implementation thereof. None of these provisions apply to a case where the tax was paid inadvertently under a wrong head", the Court observed.

The Court noted that the rectification order itself acknowledged that the petitioner had already paid the entire tax liability of ₹5.84 lakh, though under the incorrect head.

Observing that the petitioner had paid the correct amount within time, the Court held that it could not be compelled to pay the tax again merely because of a procedural mistake.

"Given that the petitioner has discharged the tax liability within the prescribed period, the petitioner cannot be penalised by being directed to first pay the taxes and thereafter seek the refund", the Court held.

The Court directed the petitioner to file an application seeking appropriation of the amount paid under IGST towards its CGST and SGST liability and directed the GST authorities to complete the adjustment within 30 days of receiving the application.

It also set aside the rectification order to the extent it conflicted with these directions.

For Petitioner: Advocate Suhrith Parthasarathy,

For Respondent: Advocate R.Sethu Prabakaran