The Goods and Services Tax Appellate Tribunal (GSTAT), Hyderabad, has set aside a ₹68.52 lakh demand against a software services company, holding that eligible Integrated Goods and Services Tax (IGST) credit inadvertently claimed equally under the Central GST and State GST heads did not constitute wrongly availed input tax credit under Section 73.

The Bench of A P Ravi (Judicial Member) and Duvvuri Krishna Srinivas (Technical Member) also held that credit could not be denied solely because the taxpayer had not furnished the verification certificates contemplated by Circular No. 183/15/2022-GST.

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The bench set aside the appellate order with consequential relief. It also recognised the taxpayer’s statutory entitlement to refund of its pre-deposit with applicable interest, even though no specific prayer had been made for that relief.

The dispute concerned the period July 2017 to March 2018. The department alleged that input tax credit claimed in GSTR-3B did not reconcile with the figures reported in GSTR-9.

A show cause notice dated November 13, 2021 proposed a demand of ₹75,04,688, comprising ₹68,52,254 relating to excess credit on reconciliation, ₹4,03,520 relating to under-declared outward supplies, and ₹2,48,914 relating to ineligible credit, along with interest and penalty.

By an order dated December 8, 2023, the adjudicating authority dropped the demands concerning outward supplies and ineligible credit but confirmed the demand of ₹68,52,254.

The first appellate authority upheld that demand on November 22, 2024. Before the Tribunal, both sides agreed that the appellate authority had rested its decision solely on the non-production of certificates under Circular No. 183/15/2022-GST.

The disputed credit arose from two invoices dated March 30, 2018, issued by Innominds Software SEZ India Private Limited. The IGST charged on those invoices was reflected in the recipient’s GSTR-2A.

However, the recipient claimed the total credit of ₹68,52,254 equally under CGST and SGST instead of claiming it under IGST.

The Tribunal noted that Section 7(5)(b) of the IGST Act treats supplies to or by an SEZ developer or SEZ unit as inter-State supplies. Consequently, IGST was the tax chargeable on the transactions.

The department’s objection concerned the heads under which credit had been claimed, rather than the absence of an underlying supply or invoice.

The Tribunal explained that the proper officer must first obtain the relevant invoice details and ascertain compliance with the statutory conditions for credit.

These checks include possession of invoices, receipt of goods or services, and payment of the supply value together with tax, alongside the other requirements prescribed in the circular.

Certificates from a Chartered Accountant, Cost Accountant or supplier serve to verify payment of tax by the supplier under Section 16(2)(c). They do not create an additional condition of eligibility.

The record did not establish that the authorities had first sought invoice details and undertaken the verification prescribed by the circular. The Tribunal attributed that omission to the authorities, rather than the taxpayer.

It further found that the certificate mechanism was not engaged on the facts of this case. The IGST was already reflected in GSTR-2A, and the dispute arose from the head under which the credit was claimed.

Even if the mechanism applied, non-production of the certificate would call for verification of the conditions under Section 16(2), rather than automatic denial of credit.

The Tribunal relied on the Kerala High Court’s judgment in Rejimon Padickapparambil Alex v. Union of India, delivered on November 26, 2024.

That case similarly concerned IGST credit split and reported under CGST and SGST. The High Court treated the mistake as inadvertent and technical, rather than excess credit warranting proceedings under Section 73.

Finding the facts materially similar, the Tribunal held that the error in the present case concerned reporting and did not involve claiming credit to which the taxpayer was not entitled.

The supplier’s SEZ status did not alter that conclusion. It established the inter-State character of the supply but did not change the fact that IGST had been charged.

Accordingly, the Tribunal concluded that the ₹68,52,254 claimed equally under CGST and SGST was not input tax credit wrongly availed within the meaning of Section 73.

The Tribunal expressly declined to base its decision on revenue neutrality, observing that it had not been established.

At the same time, the department had neither quantified nor demonstrated the alleged revenue loss to Telangana. An apprehension of loss could not sustain the demand under Section 73.

The Tribunal also rejected the department’s contention that the taxpayer’s remedy lay under Section 77 of the CGST Act and Section 19 of the IGST Act.

It explained that those provisions concern tax paid on a transaction under an incorrect classification as an intra-State or inter-State supply. The present dispute concerned input tax credit claimed by the recipient.

Those provisions did not displace the finding that the credit had not been wrongly availed under Section 73.

Since the underlying tax demand did not survive, the Tribunal held that the consequential interest and penalty could not survive independently.

It therefore found no need to examine the parties’ further submissions concerning Rule 88B and the principles governing imposition of penalty.

The Tribunal recorded that the taxpayer had made a pre-deposit of ₹6,85,226 on March 26, 2026.

Referring to Section 115, it explained that where an appellate order results in refund of an amount deposited under Section 107(6) or Section 112(8), interest at the rate specified under Section 56 is payable from the date of payment until the date of refund.

Although the taxpayer had not specifically sought refund of the pre-deposit with interest, the Tribunal held that a statutory benefit could not be denied merely for want of a specific prayer.

The Tribunal set aside the impugned order and allowed the appeal with consequential relief. No costs were imposed.

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