Mere Adjustment of ITC doesn't attract Section 73 Proceedings: Kerala HC Quashes GST Order [Read Order]

The High Court of Kerala at Ernakulam ruled that proceedings under Section 73 of the GST Act cannot be initiated merely for the adjustment of input tax credit under a different head, as it does not constitute a case of wrongful availment or utilization resulting in revenue loss. The Court quashed the order passed against the petitioner.

M/s Ashok Drugs (Wholesale), the petitioner, a registered taxpayer under the CGST/SGST Act, faced an order (Ext.P1) dated 26.12.2023 passed by the Deputy State Tax Officer, Chalappuram. The order was issued under Section 73 of the CGST/SGST Act for the assessment year 2017-18, alleging that the petitioner had claimed ineligible input tax credit. The issue arose because the petitioner had inadvertently claimed IGST input credit in their GSTR 3B return for January 2018, despite not having any interstate sales.

The petitioner's primary contention was that the wrong application of input tax credit—essentially an adjustment in a different tax head—could not be a ground to initiate proceedings under Section 73 of the CGST Act. They relied on a Division Bench decision of the same Court in Rejimon Padikapprambil Alex v. Union of India and Others [2024].

The decision had clarified that Section 73 is attracted only when tax is not paid, short-paid, erroneously refunded, or when input tax is wrongfully availed or utilized. It was held that a mere adjustment of input credit to a different head does not cause revenue loss and therefore does not fall within the ambit of Section 73.

The single bench of Justice Ziyad Rahman A.A., after hearing the petitioner's counsel and the Government Pleader, found that the issue was "squarely covered" in favor of the petitioner by the precedent set in Rejimon Padikapprambil Alex.

The Court accepted the principle that the proceedings under Section 73 were not sustainable as the case involved a mere adjustment of credit rather than a wrongful availment that caused a loss to the revenue. Accordingly, the writ petition was allowed, and the impugned order was quashed.

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