Is interest payable if IGST is wrongly deposited under the CGST head?

Introduction

Several indirect taxes that were previously imposed were replaced by the GST law, which went into effect on July 1, 2017. Despite simplifying the tax structure, the CGST Act has a number of provisions that can be difficult for individuals and businesses to properly understand. Section 17(5) of the CGST Act is one such clause that describes situations in which the input tax credit (ITC) is limited, which makes GST compliance even more difficult.

Errors in tax payments frequently result from a lack of knowledge or comprehension of such provisions. For example, incorrectly depositing IGST under the CGST head is a frequent error. According to GST regulations, intra-state transactions are subject to CGST and SGST/UTGST, whereas interstate supplies are subject to IGST.

Will there be an interest liability if IGST is wrongly deposited under CGST?

Let us refer to the case of Shree Nanak Ferro Alloys Pvt. Ltd. Vs Union of India (Jharkhand High Court) to find out.

Facts of the Case

Assessee (petitioner) had wrongly deposited CGST instead of IGST
Assessee was asked to pay interest on the GST wrongly paid.
Dispute relates to the month of September 2017, which was just after the implementation of the GST Acts.

Let us first refer to the Provisions of the Law before we move ahead

As per Section 49(3) of CGST Act, the amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of the CGST Act or the rules made thereunder.

According to Section 49(4) of CGST Act, the amount available in the electronic credit ledger may be used for making any payment towards output tax under the CGST Act or IGST Act.

As per Section 77(1) of the CGST Act, a registered person who has paid the Central tax and State tax on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.

According to Section 19(2) of the IGST Act, A registered person who has paid central tax and State tax or Union territory tax, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any interest on the amount of integrated tax payable.

Discussions and Hearings

The petitioner had discharged their tax liability under the IGST head, but wrongly deposited the amount under the CGST head.
It is not the case where the petitioner has concealed the transaction or has committed any fraud in discharging its tax liability.
The contention of counsel for CGST is that there was some ulterior motive behind the deposit of tax under the CGST head.
The same was evident from the fact that the petitioner had filed GSTR-1 in which the tax liability was correctly shown to be inter-State supply, but the stand was changed in the form GSTR-3B.
The petitioner claimed that the cash was deposited accidently in the electronic cash ledger of CGST head, due to the fact that it was the initial stages of the GST regime.
According to the petitioner, deliberately depositing the cash in the electronic cash ledger for the CGST head, instead of the IGST head, would not be beneficial in any way to him.
It was observed that due to the initial stage of the CGST regime, there might be some confusion, due to which the cash was wrongly deposited in the wrong electronic cash ledger.
Under Section 49(3) of the CGST Act, the ‘electronic cash ledger’ may be used for making the payment of the tax and the other liabilities under the CGST Act only. There is no provision of cross utilization which is available in case of ‘electronic credit ledger’ under Section 49(4) of the CGST Act
Section 77(1) of the CGST Act, read with Section 19(2) of the IGST Act, clearly states that a registered person who has paid the Central tax, treating the transaction to be intra-State supply, (petitioner is this case), but which turns out to be inter-State supply, is entitled to the refund of the amount of tax so paid, under Section 77(1) of the CGST Act, and at the same time such person cannot be burdened with the liability of interest in view of the provision of Section 19(2) of the IGST Act.
The contention of the respondent that these provisions are for the persons and cases which are genuine may also be accepted. However, there is nothing on record showing that the petitioner had not acted authentically, particularly in view of the fact that the transaction relates to the early stages in which the GST regime had been implemented, and there might be some confusion prevailing at that initial stage.
The petitioner was granted the benefit of the provisions of Section 77(1) of the CGST Act, read with Section 19(2) of the IGST Act.

Ruling and Conclusion

The petitioner was thus directed to deposit the GST amount under the IGST head within 10 days. No interest shall be liable on such amount. The petitioner shall also be entitled to get the refund of the amount deposited under the CGST head, or they may get the amount adjusted against their future liabilities, in accordance with law, as they may choose.

This was a case of a genuine mistake and the same was taken into consideration. The petitioner had no intention to defraud and evade the payment of tax and therefore it was ruled interest was not payable.

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