ITC Disallowance Set Aside – Reconsideration Directed in Light of Precedent

Case Title: M/s. S & D Sales Marketing v. Deputy Commissioner of State Tax & Others
Court: High Court of Kerala at Ernakulam
Petition No.: WP(C) No. 8729 of 2025
Date of Judgement: 25 March 2025
Category of Dispute: Input Tax Credit – Cross Utilisation of IGST for CGST/SGST
Relevant Sections: Sections 16, 49(5) of the CGST Act, 2017; relevant rules on ITC utilisation

Facts of the Case

1. The petitioner, a proprietorship firm trading in rice and dairy products, availed ITC of ₹1,51,684/- for FY 2017-18 under CGST and SGST heads (¶2).

2. The proper officer disallowed the credit and imposed tax, interest, and penalty vide Exhibit P1 order (¶2).

3. The petitioner’s appeal was dismissed by the Appellate Authority (Exhibit P2), thereby upholding the disallowance (¶2).

4. The petitioner contended that utilisation of IGST credit for SGST and CGST liabilities is permissible, but the authorities treated it as contrary to law (¶5).

Questions in Consideration

• Whether the petitioner was entitled to utilise IGST credit to discharge SGST and CGST liabilities (¶4–5).

• Whether the orders disallowing ITC (Exhibit P1 & P2) could be sustained in light of judicial precedent (¶5).

Observations of the Court

1. The Court relied on Rejimon Padickapparambil Alex v. Union of India & Ors. [2024 KHC Online 7215], which held that ITC in the electronic credit ledger is like a wallet with compartments, permitting cross-utilisation of IGST credits for CGST/SGST liabilities (¶4).

2. The petitioner’s utilisation of IGST credit was consistent with the principles laid down in the above precedent (¶5).

3. The impugned orders failed to consider the binding precedent and thus required reconsideration (¶5–6).

Judgement of the Court

• The Court set aside Exhibit P1 (determination order) and Exhibit P2 (appellate order) (¶6).

• The matter was remanded to the Deputy Commissioner of State Tax (R1) for reconsideration in light of Rejimon Padickapparambil Alex (¶6).

• Authorities were directed to provide an opportunity of hearing and decide afresh within three months (¶6).

Between Fine Lines

This judgment reiterates that IGST credit can be utilised for CGST/SGST liabilities, treating the credit ledger as a pooled fund with compartments. The High Court quashed the earlier disallowance of ITC and directed reconsideration based on precedent. Taxpayers facing similar ITC disputes can rely on this principle. Authorities must also ensure due consideration of higher court rulings before disallowing ITC. The case strengthens judicial consistency in GST credit utilisation rules.

Summary of Referred Cases

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