The Goods and Services Tax Appellate Tribunal (GSTAT) has held that a demand for alleged excess Input Tax Credit (ITC) cannot be sustained merely because eligible credit was reported or classified under the wrong GST tax heads, where the department has failed to establish that the taxpayer exceeded its aggregate eligible ITC entitlement.
The Bench of Narendra Kumar (Judicial Member) and Alok Chopra (Technical Member) allowed a second appeal involving an ITC dispute of ₹2,00,816, while directing the proper officer to verify whether sufficient eligible ITC was available under the IGST head.
The dispute concerned the tax period from April 2020 to March 2021. On comparing ITC availed in Form GSTR-3B with credit reflected in the relevant returns, the adjudicating authority treated ₹1,00,408 under CGST and ₹1,00,408 under SGST, aggregating to ₹2,00,816, as excess ITC.
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Proceedings were initiated under Section 73 of the CGST Act, 2017, and notably there was no allegation of fraud, wilful misstatement or suppression of facts. The adjudication order was passed on February 3, 2025, and the taxpayer’s first appeal was subsequently rejected on June 26, 2025.
The controversy ultimately reached GSTAT on the question whether a difference arising from the reporting or allocation of ITC between IGST, CGST and SGST could itself be treated as excess availment when there was no finding that the taxpayer had exceeded its overall eligible ITC.
Before the Tribunal, the taxpayer argued that the demand arose solely because of the allocation of ITC between different tax heads and not because it had actually claimed credit exceeding its overall entitlement.
According to the taxpayer, the alleged excess was essentially a misclassification or reconciliation issue between IGST, CGST and SGST. The genuineness of purchases and substantive eligibility for ITC had not been disputed. It was also argued that IGST credit can legally be utilised towards CGST and SGST liabilities in accordance with Section 49 and the prescribed utilisation mechanism.
The taxpayer further contended that its IGST credit remained under-utilised and that the apparent excess under CGST and SGST resulted from inadvertent accounting allocation. Since aggregate eligible ITC remained unchanged and there was allegedly no revenue loss, it argued that the demand for tax, interest and penalty could not survive.
It was specifically submitted before the Tribunal that sufficient aggregate ITC existed in the Electronic Credit Ledger and that the dispute was one of reconciliation and rectification rather than fresh or wrongful availment of credit.
The department opposed the appeal, maintaining that availment of ITC under an incorrect tax head was not permissible under the statutory framework.
Its representative argued that where there is a shortfall under a particular tax head, the taxpayer must discharge the liability under that head. Any excess payment or credit under another head, according to the department, would have to be dealt with through refund or another remedy available under law.
The first appellate authority had similarly proceeded on the reasoning that Section 16(2)(c) entitled a taxpayer to ITC only under the tax head in which tax had actually been deposited and that transfer between different heads occurs through the prescribed cross-utilisation mechanism.
The Tribunal identified the central question as whether ₹1,00,408 each under CGST and SGST could be treated as excess ITC when the taxpayer claimed that corresponding eligible credit existed under IGST and its aggregate eligible ITC had not been exceeded.
The Bench examined the Kerala High Court’s ruling in Rejimon Padickapparambil Alex v. Union of India, where a similar situation had arisen after IGST credit was inadvertently reported by splitting it into CGST and SGST in Form GSTR-3B, producing a mismatch with Form GSTR-2A.
The Tribunal also considered the principle flowing from CBIC Circular No. 192/04/2023-GST concerning the calculation of interest in cases involving wrongly availed IGST credit. The material reproduced in the order emphasised consideration of the combined balance of IGST, CGST and SGST in the Electronic Credit Ledger while determining the extent of utilisation for the specified purpose.
The Tribunal noted the analogy of the ledger as a wallet containing separate compartments for IGST, CGST and SGST. For determining the relevant interest consequence under Rule 88B, the overall balance is taken into consideration rather than merely looking at an individual compartment.
Thus, where the combined balance of IGST, CGST and SGST never falls below the wrongly availed amount during the relevant period, the cited principle indicates that interest liability does not arise merely because the balance under one individual head falls below that amount.
The Tribunal observed that the taxpayer had asserted that the aggregate ITC balance under IGST, CGST and SGST was sufficient and that there was no excess availment in substance.
Crucially, the Bench recorded that the department had not established any actual loss of revenue arising from the alleged misclassification. It consequently held that the demand could not be sustained merely because credit had been reflected under an incorrect tax head.
The Tribunal also noted that the proceedings had been initiated under Section 73 without allegations of fraud, wilful misstatement or suppression. Once the principal demand for alleged excess ITC was found unsustainable on the facts, the consequential interest and penalty could not independently survive.
The Bench recorded a key finding: the department had not established that the taxpayer actually availed ITC exceeding its aggregate eligible entitlement.
According to GSTAT, the discrepancy was essentially attributable to reporting or classification of ITC under different tax heads, while the substantive eligibility of the underlying credit had not been shown to be disputed.
At the same time, the Tribunal identified an important factual issue requiring verification. It found that neither the original adjudicating authority nor the first appellate authority had examined whether sufficient eligible ITC was actually available under the IGST head.
The taxpayer’s assertion was that corresponding credit existed under IGST but had instead been availed under CGST and SGST, without claiming the same amount again under IGST, thereby making the exercise revenue-neutral. GSTAT observed that this claim had not been verified from the Electronic Credit Ledger or the returns filed by the taxpayer.
The Tribunal ultimately allowed the appeal, but made the dropping of the revenue demand dependent upon factual verification.
It directed the proper officer to verify whether sufficient eligible ITC was available under the IGST head. If verification establishes that the corresponding IGST credit remained unclaimed by the taxpayer, the revenue demand is to be dropped.
Following such verification, the taxpayer would also be entitled to consequential relief, including restoration or adjustment of ITC, if any, in accordance with law.
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