M/S Lucknow Test House vs. Shashi Bhushan Singh, Additional Commissioner Grade- Ii, State Tax Lucknow & Ors.

Facts

The appellant, M/s Lucknow Test House, filed an appeal against an order that confirmed a demand of Rs. 2,00,816/- (Rs. 1,00,408/- under CGST and Rs. 1,00,408/- under SGST) treated as excess Input Tax Credit (ITC) for the period April 2020 to March 2021. The dispute arose from a comparison of ITC availed in GSTR-3B with credit reflected in returns. The proceedings were initiated under Section 73 of the CGST Act, 2017, with no allegations of fraud or suppression. The appellant contended that the difference was due to misclassification between IGST, CGST, and SGST heads, and that the aggregate eligible ITC was not exceeded, making the matter revenue-neutral.

Held

The Court held that the department had not established that the appellant actually availed ITC in excess of its aggregate eligible entitlement. The discrepancy was found to be attributable to the reporting or classification of ITC under different tax heads, and the eligibility of the underlying credit was not disputed on substantive grounds. The Court followed the ratio of Rejimon Padickapparambil Alex v. Union of India, holding that similar inadvertent reporting of IGST as CGST and SGST constitutes a technical error and does not, by itself, justify a demand under Section 73, especially when the aggregate eligible ITC is not exceeded and the matter is revenue-neutral. The Court noted that neither the Original Adjudicating Authority nor the First Appellate Authority had adequately verified the appellant's claim regarding sufficient eligible ITC under the IGST head. Therefore, the matter was remanded to the proper officer for verification of the availability of eligible IGST credit. If the aggregate eligible ITC is found not to have been exceeded, the demand of Rs. 2,00,816/- is to be dropped, and consequential relief granted. The issue of interest and penalty was also rendered unsustainable as the principal demand was found unsustainable.

Key Issues

1. Whether the alleged excess availment of ITC of Rs. 2,00,816/- (Rs. 1,00,408/- under CGST and Rs. 1,00,408/- under SGST) is sustainable in law, where the appellant contends that equivalent eligible ITC was available under the IGST head and the total ITC availed did not exceed the aggregate eligible ITC, turning on Section 16(2)(c) and Section 49 of the CGST Act, 2017. 2. Whether the Electronic Credit Ledger should be considered a unified pool of funds for determining ITC availability and interest liability, as per Rule 88B of the CGST Rules, 2017. 3. Whether the lower authorities were justified in confirming the demand without adequately verifying the appellant's contention of sufficient eligible ITC under the IGST head, as required by principles of natural justice and relevant provisions. Petitioner's Arguments: The appellant argued that the discrepancy was merely a technical error in reporting/classification between tax heads and not an actual excess availment of ITC. They contended that IGST credit is available for utilization towards CGST and SGST liabilities as per Section 49, and the aggregate eligible ITC was not exceeded, rendering the matter revenue-neutral. They relied on the principle that mere misclassification without revenue loss cannot sustain a demand. They also cited Rejimon Padickapparambil Alex v. Union of India. Revenue's Arguments: The judgment does not explicitly record arguments made by the revenue or State, other than their action of initiating proceedings under Section 73 and confirming the demand.