The Kerala High Court has quashed an assessment order passed under Section 73 of the Central Goods and Services Tax (CGST) Act, 2017, holding that mere misclassification or adjustment of Input Tax Credit (ITC) under a wrong head does not justify the initiation of recovery proceedings.
The bench of Justice Ziyad Rahman A.A has observed that Section 73 proceedings can only be invoked when tax has “not been paid or has been short paid or erroneously refunded or where input tax has been wrongfully availed or utilized.”
The bench held that when the issue involves mere adjustment or misclassification of ITC across different tax heads, there is no actual revenue loss, and hence Section 73 is not attracted.
The writ petition was filed by a registered taxpayer, Ashok Drugs challenging order issued under Section 73 of the CGST/SGST Act for the assessment year 2017–2018, alleging wrongful claim of input tax credit. The petitioner contended that the issue arose due to an inadvertent error while filing GSTR-3B for January 2018, wherein IGST input credit was utilized despite there being no inter-state sales during that period.
The petitioner argued that such a clerical or accounting mistake cannot attract proceedings under Section 73, as it does not amount to non-payment, short payment, or wrongful availment of ITC causing any loss to the revenue.
The court observed that the controversy was squarely covered by a Division Bench decision of the same court in Rejimon Padikapprambil Alex v. Union of India & Others [2024 KHC Online 7215].
In Rejimon Padikapprambil Alex, the Court had clarified that Section 73 proceedings can only be invoked when tax has “not been paid or has been short paid or erroneously refunded or where input tax has been wrongfully availed or utilized.” It further held that when the issue involves mere adjustment or misclassification of ITC across different tax heads, there is no actual revenue loss, and hence Section 73 is not attracted.
Applying the same reasoning, the court ruled that the petitioner’s case involved only a wrong head adjustment of ITC and not any fraudulent or wrongful availment of credit.
The court quashed the order.
Case Details
Case Title: Ashok Drugs (Wholesale) Versus Deputy State Tax Officer
Case No.: WP(C) NO. 5496 OF 2024
Date: 15/10/2025
Counsel For Petitioner: P.Raghunathan
Counsel For Respondent: Arun Ajay Sankar
Read More: Pending Appeal in Income Tax Assessment Dispute: Kerala High Court Stays Recovery Proceedings
