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No Interest if IGST wrongly paid as CGST

  • Mar 19, 2020 | Viren Shah

GST is a new tax regime, and there have been various issues in charging/payment of tax, i.e., instead of charging/payment of CGST and SGST, IGST has been charged/paid, and taxpayers are struggling on this account.

Recently, the Jharkhand High Court, in the case of Shree Nanak Ferro Alloys Pvt. Ltd.[i] (‘the taxpayer’) has directed the taxpayer to deposit the IGST amount without any interest. Further, the taxpayer is entitled to either take a refund of CGST or adjust such amount against the future tax liabilities.

In this case, the taxpayer is registered under GST, and while filing the Form GSTR-3B for September 2017, the taxpayer inadvertently paid CGST instead of IGST. However, while submitting the Form GSTR-1 for the said month, the taxpayer reflected correct tax liability under IGST.

During Central Excise Revenue Audit, on perusal of Forms GSTR-1 and GSTR-3B, it was observed that there is a short payment of IGST amounting to approximately INR 42 lakhs. The revenue authorities issued a letter demanding payment of IGST along with interest.

The taxpayer filed a reply stating that they had paid the IGST amount inadvertently under the head CGST and filed a writ petition before the High Court against the interest amount.

The taxpayer challenged the levy of interest before the Jharkhand High Court by arguing that:

  • There is no short payment of tax by the taxpayer. The inter-state transaction was inadvertently considered as an intra-state transaction, and accordingly, there was a bonafide mistake of tax payment under the different head; and
  • Basis the provisions of Section 77(1) of the CGST Act and Rule 92 of the CGST Rules, it was submitted that the taxpayer is ready to either pay the IGST amount and obtain the refund of CGST amount wrongly paid or adjust the CGST amount paid against any future tax liabilities.

After considering the various provisions/rule of GST law, the High Court observed as under:

  • The taxpayer had discharged the tax liability under the wrong tax head. Hence, it is not a case of willful concealment or fraud; and
  • Reliance was placed on the provisions of Section 77(1) r.w.s. 19(2), which provides for refund of CGST in cases where a transaction has been treated as an intra-state instead of inter-state supply and that interest shall not be applicable.

Based on the above, the High Court directed the taxpayer to deposit the tax under IGST within ten days and held that no interest is payable on the said amount. Further, the High Court held that the taxpayer should also be entitled to get the refund of the tax amount deposited under the CGST head, or it may be adjusted against future liabilities, per law.

It is pertinent to note that the Kerala High Court, in the case of Saji S.,[ii] has directed the revenue authorities to transfer the tax amount paid by the taxpayer under a wrong head by mistake to the right head.

The decisions, as mentioned earlier, will serve as a guideline to the taxpayer/revenue authorities while dealing with the wrong payment of tax.  

To understand how Avalara can help you with GST compliance, visit www.avalara.com

[i] [2020 (1) TMI 833]

[ii] WP(C) No. 35868 of 2018

Avalara helps businesses of all sizes get GST return filing, e-way bill generation and e-invoicing right with cloud-based GST compliance solutions in India. Goods and Services Tax (GST) rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Viren Shah
Avalara Author Viren Shah
Viren Shah, a member of the Institute of Chartered Accountants of India and a Bachelor of Commerce from Mumbai University, has experience of more than a decade in Corporate and International Taxation. He specializes in Domestic and International Taxation, with specific emphasis on cross border transactions and exchange control laws with respect to inbound and outbound investments. He has vast experience in advising companies across various industries.

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