Effect of wrong payment of tax (CGST / SGST or IGST) – A catch 77 situation

Effect of wrong payment of tax (CGST / SGST or IGST) – A catch 77 situation

I am trying to summarize what can happen when a supply is considered as Intra State supply by the supplier but later on held as Inter State supply by the department.

Date of Supply31-07-2017CGST & SGST paid on 20-08-2017 and input availed and utilized by recipient
Departmental Audit after 3 years held above transaction as inter- state and IGST demanded01-04-2020Order passed u/s 73 and supplier accepts wrong payment
Supplier deposits IGST as above on15-04-2020No appeal is filed and section 77 says pay correct tax and claim refund of wrong tax paid
Supplier will issue Credit Note to recipient u/s 34 for wrong charging of CGST & SGST15-04-2020Issue of credit note is mandatory as to prove that incidence of tax has not been passed. This is one of the basic requirement of claiming the refund u/s 54


The supplier cannot issue credit note as it will be beyond the time limit specified in section 34.



Supplier will issue Debit Note to recipient u/s 34 for charging of IGST15-04-2020Recipient cannot take input tax credit of this debit note as it has been issued beyond the time limit given in section 16(4)


As the recipient cannot claim ITC of this debit note.


Refund claim filed u/s 54 for wrong payment of CGST & SGST on 20-08-201715-04-2020In section 54, relevant date for filing of refund claim is 2 years from the date of deposit. In this case the last date to file refund claim expires on 19-08-2019, hence supplier cannot claim refund under this section


The date of passing of order u/s 73 is not considered for calculation of relevant date

Story at the endSupplier will end up paying both the taxes and government will be smiling at the catch 77 situation it has created

Amit Mundhra FCA

Author: Amit Mundhra CA
Amit Mundhra FCA is a Fellow member of the Institute of Chartered Accountant of India. He is senior partner in Karnani & Co., Chartered Accountants. He is having 20+ years of experience in Income Tax, GST, VAT, Accounting, Audit and Assurance field.

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