2024 (9) TMI 159 - HC - GST

Transition of unutilized input tax credit under the Kerala Goods and Service Tax Act, 2017 - error in taking input tax credit of un-adjusted TDS - HELD THAT - The learned Single Judge is correct in his finding that un-adjusted TDS, which is essentially a component of output tax payable by the appellant, cannot be transitioned as un-utilised input tax credit. It cannot find fault with the learned Single Judge for having dismissed the writ petition of the appellant, in its challenge to Ext.P6 order. However, it is found that, at this distance of time, when the appellant has already utilised an amount of Rs.37,24,463/- for paying the output tax due under the CGST/SGST Act, and technically it would be entitled to claim a refund of an amount of Rs.59,05,352/-, which represented un-adjusted TDS or output tax paid in excess by it, the ends of justice could be served by modifying Annexure A1 order and Ext.P6 order so as to take into account the subsequent events that have come about since the filing of the writ petition. It would be a meaningless exercise to require the appellant to reverse the amount of Rs.37,24,463/- utilised as input tax credit and pay the said amount to the respondents, when the respondents are obliged to refund the said amount to the appellant towards un-adjusted TDS. However, the penalties of Rs.3,72,446/- and Rs.25,000/- imposed in Annexure A1 order can be sustained, taking note of the irregularity occasioned by the appellant. The disallowance of the transition of TDS, to the extent of Rs.21,80,889/- alone Rs.59,05,352 Rs.37,24,463 in Ext.P6 order, is upheld and Ext.P6 order modified to that extent. It will be open to the appellant to seek a refund of the said amount of Rs.21,80,889/- by way of refund from the State Government towards un-adjusted TDS. Thus, solely with a view to confer finality to this litigation by taking note of the revenue neutral situation that would result from the aforesaid arrangement, the writ appeal is disposed off by modifying the directions in the judgment of the learned Single Judge, Ext.P6 order that was impugned in the writ petition and Annexure A1 order that was produced in the writ appeal. The Writ Appeal is disposed off.

Summary

Issues:
1. Transition of unutilized input tax credit under the Kerala Goods and Service Tax Act, 2017.
2. Utilization of ineligible input tax credit leading to a demand of state tax.
3. Challenge to the rejection of transition of input tax credit.
4. Validity of penalties imposed on the appellant.
5. Disallowance of transition of TDS and seeking a refund from the State Government.

Analysis:
1. The appellant, a registered Private Limited Company providing works contract services, had un-adjusted TDS amounts in its account from July 2017 to March 2018. The appellant sought to transition the unutilized input tax credit of Rs.59,05,352 through Form TRAN-1, which was rejected by the respondents. The appellant had already utilized Rs.37,24,463 of this amount for paying output tax, resulting in a demand for state tax and penalties. The learned Single Judge held that un-adjusted TDS amounts cannot be treated as input tax credits under the CGST/SGST Act, dismissing the writ petition but allowing the appellant to apply for a refund of TDS.

2. The High Court found that while the learned Single Judge was correct in dismissing the writ petition challenging the rejection of transition of input tax credit, the appellant should be entitled to claim a refund of the un-adjusted TDS amount. The Court modified the orders to consider the subsequent events where the appellant had already utilized a portion of the amount for tax payment. The Court held that it would be unjust to require the appellant to reverse the utilized amount when the State Government was obligated to refund the un-adjusted TDS. The penalties imposed were upheld, but the demand for tax and interest was set aside.

3. The Court upheld the disallowance of transition of TDS to the extent of Rs.21,80,889 and modified the order accordingly. It allowed the appellant to seek a refund of this amount from the State Government. The judgment aimed to bring finality to the litigation by considering the peculiar circumstances of the case to ensure a revenue-neutral situation. The Court clarified that its directions should not set a precedent for future cases.

4. In conclusion, the writ appeal was disposed of by modifying the orders to account for the appellant's utilization of the input tax credit and the obligation of the State Government to refund the un-adjusted TDS amount. The Court maintained the penalties but set aside the demand for tax and interest, ensuring fairness in the resolution of the case.