Mr. Sanjay Kumar Chandhariyavi, Member (Judicial), Ms. Sungita Sharma, Member (Technical)
Case Number
APL/D11/GZB/2026
Advocate (Petitioner)
Arvind Kalra
Advocate (Respondent)
None
Quick ref
Takeaway
Tax Paid under Wrong Head — Self-Recredit of IGST in GSTR-3B — The GST Appellate Tribunal, Ghaziabad Bench held that a Section 73 demand treating the restoration of IGST credit, earlier used to pay tax on supplies later found to be intra-State, as ineligible ITC cannot stand on a notice that merely reproduces Section 16(2) without stating which condition failed; while unilateral recredit is not itself a lawful mode of correction, CGST and SGST paid under the correct heads must be recognised, Section 77(2) bars interest, and the matter calls for fiscal reconciliation rather than a fresh demand.
Digest & Analysis
Litigation Digest
In M/s Fiberhome India Pvt. Ltd. v. Lalit Mishra, Additional Commissioner, Noida, 2026-juristway.com-3140-GSTAT(Ghaziabad)-GST, where the appellant had paid IGST through its credit ledger in 2017-18 on supplies to BSNL later found to be intra-State, paid CGST and SGST of Rs. 1,25,21,480 each through DRC-03 dated 04.02.2020, and recredited Rs. 2,50,42,960 as IGST in its GSTR-3B for February 2020, and a Section 73 demand of that amount with interest of Rs. 1,84,06,576 and penalty of Rs. 25,04,296 was upheld in first appeal (Paras 1-5), the Tribunal held that the notice, which reproduced Section 16(2) without identifying the condition said to have failed, and the non-speaking orders that followed, could not sustain the demand on grounds never disclosed (Paras 13-28). Holding that the mistaken IGST payment does not make the recredit eligible ITC, it nevertheless held that payments under the correct heads cannot be ignored, that the entitlement to refund under Section 19(1) of the IGST Act was substantially undisputed, and that Section 77(2) of the CGST Act excludes interest (Paras 29-43). The demand, interest and penalty were set aside, the DRC-03 payments directed to be recognised, and the authority directed to reconcile the original IGST payment with the recredit, without any duplicate refund or credit (Paras 44.1-44.3).
Detailed Case Analysis
1. Whether a show cause notice that identified the amount and the month and reproduced Section 16(2), without stating which condition had failed, was a valid foundation for a Section 73 demand on the February 2020 recredit.
2. Whether restoring, through GSTR-3B, IGST credit earlier used to pay output tax under the wrong head amounts to fresh ITC under Section 16, and whether such unilateral recredit is a lawful mode of correction.
3. What effect CGST and SGST paid through DRC-03 has on the demand, and whether interest and penalty can be sustained.
The Tribunal held that a Section 73 notice must disclose why an amount is claimed, not merely how much; following Brindavan Beverages, Gorkha Security Services and Oryx Fisheries, the notice must state the material facts and legal grounds so that the noticee can answer the precise case (Paras 13-17, 24). Section 16(2) concerns credit on supplies received, whereas the appellant’s case was restoration of credit used for its own output tax. The notice, by reproducing Section 16(2) and recording a bare conclusion, did not indicate which condition failed or whether the objection was to the original purchase credit or to unauthorised restoration — two different factual and legal inquiries (Paras 18-22). The first appellate authority also relied on clause (aa) of Section 16(2), which came into force only on 01.01.2022, after the disputed entry (Para 19). Ecom Gill Coffee Trading was held not to assist the Revenue, as it concerned proof of genuine purchases (Para 21).
Under Section 75(6) and 75(7), an order must state its reasons and cannot confirm a demand on grounds not stated in the notice; following Toyo Engineering and Champdany Industries, the Revenue could not reconstruct its case at the appellate stage by alleging supplier default or a refund-procedure breach that the notice had not put to the appellant (Paras 23, 26). The proper officer’s order recorded the appellant’s reply but rejected it without identifying the clause of Section 16 relied upon, and the first appellate order proceeded as if tax under the correct heads had not been paid; applying Kranti Associates, both were held non-speaking (Paras 27-28).
On substance, the Tribunal held that IGST paid as output tax does not become ‘input tax’ under Section 2(62) merely because the supply was misclassified, so unilateral recredit is not automatically lawful; equally, an irregular entry cannot validate a defective notice (Para 32). Reading Section 19(1) of the IGST Act with Section 77(2) of the CGST Act, Rule 89(1A) and Circular No. 162/18/2021-GST, it held that the statutory scheme does not contemplate retention of both IGST and CGST/SGST on the same supply, and that the DRC-03 payments, accepted and supported by the ledger, discharged the liability under the correct heads (Paras 29-31). Applying Mangalore Chemicals, Gursahai Saigal and Shamlal Murari, it treated refund entitlement as substantially undisputed and the defect as procedural (Paras 33-35). Bharti Airtel limited the appellant’s ‘accounting adjustment’ argument but did not permit the Revenue to ignore an established payment, and the Supreme Court’s observations in Aberdare Technologies on the right to correct bona fide errors, together with Ocean E Mart of the Allahabad High Court, supported the appellant (Para 36).
Revenue neutrality, voluntary disclosure in GSTR-9 and GSTR-9C during the early phase of GST, and the absence of any allegation of fictitious invoices were held relevant to good faith (Para 37, relying on Nirlon). Article 265 bars a fresh demand on a liability already validly discharged, and Article 14 requires the authority to distinguish a disclosed restoration claim from a claim based on fictitious purchases (Paras 38-40). Interest was excluded by Section 77(2) and, in any event, interest under Section 50(3) and Rule 88B requires findings on actual utilisation, which were absent; penalty could not survive once the finding of wrongly availed credit failed (Paras 41-42). The Tribunal concluded that the legality of the recredit and the legality of the demand are separate questions, and that fiscal reconciliation, not a fresh demand, was required (Para 43).
The appeal was allowed and the orders of the proper officer and the first appellate authority were set aside. The demand of Rs. 2,50,42,960, interest of Rs. 1,84,06,576 and penalty of Rs. 25,04,296 were set aside insofar as they rested on grounds not disclosed in the notice. The CGST and UPGST payments of Rs. 1,25,21,480 each through DRC-03 dated 04.02.2020 are to be recognised against the supplies and liabilities to which they relate, and the competent authority is to reconcile the original IGST payment with the subsequent recredit, without granting any duplicate refund or credit. No costs (Paras 44.1-44.4).
✎ Editor's Note
Taxpayers who corrected inter-State/intra-State errors through a GSTR-3B recredit rather than a refund claim have a defence here, but its basis must be understood. The Tribunal did not approve self-recredit: it held in terms that wrong-head IGST does not become input tax and that the refund route under Section 19 of the IGST Act read with Rule 89(1A) is the statutory method. The appellant succeeded because the notice charged a Section 16(2) violation without saying which condition failed, and because the orders ignored the payments under the correct heads. Departments framing future notices are likely to plead the refund-procedure breach specifically, and taxpayers relying on this ruling should expect that argument. The reconciliation directed in Para 44.3 deserves attention. The appellant’s own reply placed the original IGST paid through credit for July 2017 to March 2018 at Rs. 2,49,96,590, while the recredit was Rs. 2,50,42,960. That difference of Rs. 46,370, small as it is, is the kind of item the reconciliation will expose, and the direction against duplicate credit permits its recovery. Taxpayers with pending matters should prepare a head-wise reconciliation tying each original debit to the DRC-03 payment and the recredit before the authority does.
Disclaimer: This content reflects the editor's personal views and should not be treated as a legal opinion or professional advice.
