IGST paid on transaction related to CGST and SGST.

Case Title: Walchandnagar Industries Ltd., In re

Court: High Court of Andhra Pradesh

Petition No.: W.P. No. 6307 of 2022

Category: Classification of Supply – Inter-State vs Intra-State and IGST Adjustment/Refund

Date of Judgement: 21 July 2022

Relevant Sections:

Article 226 of the Constitution of India

Section 7 of the IGST Act, 2017

CGST Act, 2017

Andra Pradesh SGST Act, 2017

Facts of the Case [¶3]

• The petitioner, Walchandnagar Industries Ltd., a registered dealer in Andhra Pradesh, engaged in execution of contracts and manufacture of industrial products, received a work order from the Ministry of Defence, Government of India, in 2011 for aggregation work on defence vessels.
• The execution site was located at the Ship Building Centre, Visakhapatnam, while the billing and direction came from the Ministry in New Delhi.
• Petitioner treated the supply as inter-State and paid IGST under section 7 of the IGST Act.
• On 15-11-2018, a Show Cause Notice was issued proposing to treat it as intra-State supply, demanding CGST and SGST.
• Despite objections by the petitioner, the assessment order dated 5-10-2020 confirmed intra-State supply status.
• An appeal was dismissed by the Appellate Authority on 30-12-2021, leading to the writ petition.

Questions in Consideration [¶2, ¶4]

1. Whether the authorities were correct in treating the transaction as an intra-State supply, disregarding the petitioner’s classification as inter-State?
2. Whether the amount already paid as IGST can be adjusted against CGST and SGST liability?
3. Whether the petitioner is entitled to a refund of the IGST upon payment of CGST and SGST?

Observations of the Court [¶6–7]

• The Court noted that even in the assessment order, the department agreed that IGST adjustment is not permitted directly but a refund claim may be made by the taxpayer after paying CGST and SGST.
• There was no dispute on the nature of the transaction; rather, the issue was procedural – refund vs. adjustment.
• The Government Pleader did not strongly oppose the petitioner’s plea.

Judgement of the Court [¶7]

• The Court disposed of the writ petition with the following directions:
  • Petitioner to pay CGST and SGST within three weeks.
  • Thereafter, petitioner may apply for a refund of IGST paid earlier.
  • Respondent No. 1 (Jurisdictional Officer) shall deal with the refund application preferably within four weeks from the date of application.
• No order as to costs.

Between Fine Lines

• Even if tax is wrongly paid under IGST due to classification errors, taxpayers cannot seek adjustment against CGST and SGST liabilities.
• The only remedy is to first pay the correct taxes and then claim a refund of the previously paid tax.
• Authorities are bound to process such refund claims if the nature of the transaction is not in dispute.
• Procedural compliance is critical, even where substance is evident.
• Relief lies in prompt payment of correct tax followed by refund claim for the tax paid under the wrong head.

Summary of Referred Cases

Takeaway:

“Substance Over Form Denied: IGST Payment Can’t Offset CGST/SGST, Refund Is the Only Way”