ITC Misclassification During GST Transition Remanded for Reassessment

Case Details
Case Title: Manissery Jayachandran v. Union of India & Others
Court: High Court of Kerala at Ernakulam
Petition No.: WP(C) No. 2459 of 2025
Judgment Date: 23rd January 2025
Category: Input Tax Credit
Relevant Sections: Section 73 of CGST Act, 2017; Circular No. 192/04/2023-GST
Relevant Rules: Not specifically invoked
Judge: Hon’ble Mr. Justice Bechu Kurian Thomas

Facts of the Case (¶2–3)

• The petitioner, proprietor of Krishna Mills, Thrissur, had availed Input Tax Credit (ITC) for the FY 2017–18 under incorrect tax heads during the transition from VAT to GST.

• Mistakenly, IGST credit was claimed where CGST/SGST was applicable.

• A show cause notice under Section 73 of CGST Act was issued alleging wrongful availment of ITC.

• Despite filing a reply, the State Tax Officer passed an adverse assessment order (Exhibit P14), which was upheld by the Appellate Authority (Exhibit P15).

• A Revenue Recovery Notice (Exhibit P16) followed the confirmation of the demand.

Question(s) in Consideration (¶2, ¶4)

• Whether incorrect classification of ITC across tax heads in the electronic credit ledger constitutes wrongful availment warranting recovery under Section 73 of the CGST Act?

• Whether the authorities erred in treating such a clerical misplacement of ITC as a violation of substantive tax provisions?

Observations of the Court (¶4–5)

• The Court relied on its own Division Bench judgment in Rejimon Padickapparambil Alex v. Union of India & Others [2024 KHC Online 7215], interpreting the ITC ledger as a unified wallet with separate compartments (CGST/SGST/IGST).

• It highlighted that clerical misplacement of credits, if not fraudulent or excessive, does not amount to ineligible ITC.

• Circular No. 192/04/2023-GST was cited to reinforce that the system treats the ledger holistically.

• The Court held that both the assessing officer and appellate authority failed to consider this updated legal position and proceeded on a flawed premise.

Judgement of the Court (¶6)

• Assessment order (Exhibit P14), appellate order (Exhibit P15), and recovery notice (Exhibit P16) were set aside.

• The matter was remanded to the assessing authority for fresh consideration in light of the Rejimon Alex case and the circular.

• A time-bound direction was issued for re-adjudication within three months.

Between Fine Lines

1. Merely misclassifying ITC between IGST, CGST, or SGST does not imply wrongful availment.

2. The electronic credit ledger is a unified system and must be treated as such.

3. The Court relied on the Rejimon Alex decision and relevant GST circulars.

4. Recovery proceedings without appreciating the nature of the error are unsustainable.

5. Case was remanded to assess legality afresh with proper legal understanding.

Summary of Referred Cases

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