Facts of the Case

The petitioner, OLA Fleet Technologies Pvt. Ltd., a registered person under the Telangana State Goods and Services Tax Act, leases passenger transport vehicles on rental basis to drivers across different states. Where the driver is located in Telangana, the transaction is an intra-state supply attracting CGST and SGST; where the driver is elsewhere, it is an inter-state supply attracting IGST. Due to an inadvertent IT-system mapping error — treating Telangana as Andhra Pradesh — the petitioner classified certain intra-state transactions as inter-state and paid IGST of Rs.6,55,70,925/- instead of CGST and SGST. On inspection under Section 65 TGST Act, authorities found both supply and place of supply were within Telangana, and on scrutinising the 2018-19 returns issued a show cause notice dated 23.01.2021 demanding CGST of Rs.2,99,32,637/- and SGST of Rs.2,99,32,637/-. The petitioner challenged the notice, obtained an interim stay on 23.02.2021, and sought a direction for adjustment of the IGST already paid against the CGST/SGST demanded.

Issues Involved

  1. Whether IGST erroneously paid on a transaction later held to be intra-state can be adjusted directly against CGST/SGST payable, or whether the remedy is confined to refund.
  2. Whether the show cause notice demanding CGST and SGST could be sustained despite an equivalent liability already discharged as IGST.

Petitioner's Arguments

  • Relying on Section 77 CGST Act and Rule 4(1) of the Refund Rules, argued that a pragmatic interpretation should permit transfer/adjustment of tax paid under one head to another, rather than compelling fresh payment followed by refund.
  • Relied on the Kerala High Court's Single Bench decision in Saji S., Proprietor, Adithya and Ambadi Traders vs. Commissioner, State GST, which had allowed transfer of tax paid from SGST to IGST on similar reasoning.

Respondent's Arguments

  • Respondent Nos.1 to 3: under Section 19(1) IGST Act, the remedy for IGST paid on a supply later held intra-state is only refund; there is no statutory provision for adjustment against CGST/SGST, since CGST goes to the Consolidated Fund of India, SGST to the State, and IGST is apportioned between the two.
  • Respondent Nos.4 to 6 (Telangana Commercial Tax Department): the adjustment sought was beyond the scope of the CGST, IGST and TGST Acts and caused revenue loss to the State; relied on Shree Nanak Ferro Alloys Pvt. Ltd. vs. Union of India (Jharkhand HC) requiring payment of the outstanding correct-head tax first, with refund of the erroneous head claimed separately.

Court Order/Findings

  • Sections 77 CGST Act and 19 IGST Act mirror each other: both contemplate refund of tax paid under the wrong head on reclassification, and waive interest on the correctly-payable tax — neither contemplates direct adjustment between heads.
  • Adjusting IGST against CGST/SGST would mean adopting a procedure not provided under the statute; the Court expressly declined to follow the Kerala High Court's view in Saji S. and instead agreed with the Jharkhand High Court's approach in Shree Nanak Ferro Alloys.
  • The petitioner was directed to comply with the show cause notice dated 23.01.2021 and pay CGST and SGST within two months, with liberty to apply under Section 19(1) IGST Act for refund of the erroneously-paid IGST; respondents were directed to process any such refund application within two months of receipt.

Important Clarification

  • Sections 77 CGST Act and 19 IGST Act do not permit cross-head adjustment between IGST and CGST/SGST — the statutory remedy for tax paid under a mistaken classification of supply is a separate refund application, not a set-off.
  • A taxpayer who pays tax under the wrong head due to bona fide error must first discharge the correct liability and then pursue refund of the erroneous payment; courts will not read in an adjustment mechanism the statute does not provide.

Sections Involved

  • Section 77, CGST Act, 2017 – refund of central/state tax wrongly paid on a transaction later held inter-state.
  • Section 19, IGST Act, 2017 – refund of integrated tax wrongly paid on a transaction later held intra-state.
  • Rule 92(1), CGST Rules, 2017 & Rule 4(1), GST Refund Rules, 2017 – procedure for sanctioning refund.
  • Section 65, TGST Act, 2017 – inspection power that led to detection of the misclassification.

Decision – In Favour of

Disposed of with directions, substantially in favour of the Department: the petitioner was required to comply with the show cause notice and pay CGST/SGST, though with liberty reserved to separately claim refund of the erroneously-paid IGST.

Related Case Laws

No related case laws are available on this site at present for cross-reference on this specific point.

Case Details

  • Court: High Court for the State of Telangana at Hyderabad
  • Case No.: Writ Petition No.4210 of 2021
  • Coram: Justice Ujjal Bhuyan and Justice A. Venkateshwara Reddy
  • Date of Order: 16.03.2022

Link to Download the Order

Download the Order

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