GST Payment Under Wrong Head: How to Correct It

GST or Goods services tax provisions have no mechanism for players. The tax amount paid under the wrong head with the correct head. For example, in case the taxpayer paid tax under the CGST besides SGST but later it was found tax was to be paid underneath, the taxpayer has no choice except to claim the refund towards payment of tax made under the wrong head subject to first reimbursement of tax under the correct head. There are specific provisions in this regard under the GST Law that allow the taxpayer to claim a refund of the tax amount paid under the wrong head. These provisions are replicated under some proceedings. So, in this blog, we will talk about the payment of GST under wrong head.

GST Payment Under Wrong Head and remunerated to the Central Government or State Government used to:

77.(1) A registered person who has paid the Central tax and State tax or, as the case may be, the central tax in addition to the Union territory tax on a transaction measured 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 means and subject to such conditions as may be prescribed. (2) A registered person who has paid united tax on a transaction considered by him to be an inter-state supply but which is later held to be an intra-state supply shall not be required to pay any interest on the amount of Central tax and State tax or, as the case may be, the Central tax and the Union terrain tax payable. Section 19 IGST Act –

Relevant provisions under the GST Laws

Section 77 of the CGST Act 2017 provides that the registered person who has paid CGST besides SGST/ UTGST, as the case, can cgst be adjusted against igst on a business considered by him to be an intra-state supply but which is subsequently held to be an inter-state supply, would be refunded the amount of taxes paid in the means prescribed.

Similarly, Section 19 of the IGST Act 2017 provides for the refund of IGST, where taxpayer painstaking intra-State supply is considered an inter-State supply. Notably, no interest is levied on the payment of tax as there is no loss to Government Revenue.

Rule 89 of the CGST Rules, 2017 offers the manner of refund of tax. The person who has paid excess tax is required to file the refund application beneath Form igst adjustment against CGST and SGST within 2 years from the relevant date, i.e., the date of payment of tax.

An amendment introduced under relevant provisions for adjusted against SGST

Throughout March 29, 2019, the Government studied the deposit order for incoming tax credit (IGST), with the aim of optimizing the revenue division between central and state authorities. However, if not used properly or correctly, these changes can increase the need for wages and capital for companies. In order to reduce this, it is important to understand the new counter-order order, optimize the IGST use and consider a possible impact on the operation.

These notifications were given March 29, 2019 with No. 16/2019-Central Tax, and Rule 88A set a new priority for ITC use. It was effectively published until April 1, 2019; It is mandatory that IGST ITC is originally used to determine the Idst obligations. Any addition can be used on CGST or SGST/published payment. In addition, CGST, SGST or published ITC can only be used after abolishing IGST ITC.

It is also provided that the said claim is required to be filed before the expiry of a period of two years from the date on which this sub-rule comes into force, where any payment of tax on inter-state supply is made earlier coming into force of this sub-rule.

Impact of the amendment

Earlier, there were doubts relating to the time limit within which repayment is required to be filed, where the tax was paid underneath the wrong head. In order to remove the ambiguity, the amendment would provide a release to the taxable person, as now, he would be able to file the refund application within 2 years from the date of payment of tax under the correct cranium.

Further, in cases where the payment under the correct head is completed before the amendment Notification, the taxable person can file the refund claim within 2 years from the date of such Notification, which is September 24, 2021. Therefore, the refund can be applied in such cases earlier than September 23, 2023.

Clarification on the interpretation issues

Various doubts were raised on the understanding of the term ‘subsequently held,’ whether a refund claim would be available where the payment made under the wrong hand is subsequently found by the tax officers or would also contain the scenarios where the taxpayer himself subsequently finds it. The CBIC has clarified via Circular No. 162/18/2021-GST, Dated September 25, 2021, that the refund would be accessible in both the given cases.

The amendment introduced over CGST (Eighth Amendment) Rules, 2021, provides for refund claims under Section 77. However, the amendment does not specifically mention the cases roofed under Section 19. In this regard, the CBIC has clarified that Rule 89 (1A) would be applicable for Section 19 also, where the taxpayer has firstly paid IGST on a specific transaction, which later on is held as intra-state supply, and the taxpayer accordingly pays CGST and SGST on the said business

The CBIC further clarifies that Rule 89(1A) would also be valid for any refund applications filed before the issuance of impugned Notification, whether it is pending or likely off.

In cases where tax paid under the wrong head is accustomed by way of issuing credit note under Section 34 of the CGST Act and later on re-issuing the tax invoice by alleging tax under the correct head, the CBIC has explained that the refund under Section 77 or Section 19 would not be accessible in such cases.

1. Section 77 of the CGST Act, 2017, read with Rule 89 of the CGST Rules, 2017

2.Sub-rule 1A inserted in Rule 89 of the CGST Rules, 2017 vide Notification No. 35/2021 – Central Tax, Dated September 24, 2021

3. Circular No. 162/18/2021-GST, Dated September 25, 2021

4. Section 77(2) of the CGST Act

5. Section 54 of the CGST Act, 2017

6. Explanation 2(h) of Section 54 of the CGST Act, 2017

7. Rule 89(1A) of the CGST Rules, 2017

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Conclusion

GST is a destination-based tax. The requirements of the place of supply play an important role in deciding the taxable jurisdiction, i.e., the state that gets the right to collect tax. Still, there can be some instances where a taxpayer may wrongly consider a transaction as intra-state supply as an alternative to inter-state supply or vice-versa, besides paying tax under the wrong head.

FAQs

1. How do you change the payment head in GST?

PMT-09 is a challan for transferring taxes paid underneath the wrong heads in the electronic cash ledger from one head to another. From July 5, 2022, if a taxpayer desires to transfer CGST from the cash ledger of one GSTIN to another GSTIN under the same PAN as CGST/IGST, the same method can be used.

2. What if GST is claimed under the wrong head?

One common issue is the incorrect availment of ITC under the wrong head, such as claiming CGST and SGST as an alternative to IGST or vice versa. The relevant provisions of the CGST Act specify that ITC must be requested based on whether the supply is intrastate or interstate.

3. How do I change my wrong payment on GST?

For example, the IGST amount is mistakenly entered in CGST. In such cases, this amount gets reflected in the Electronic Cash Ledger under CGST. This poise can not be used to pay IGST liability. Therefore, Form GST PMT-09 is available to provide the capacity to correct such errors.

4. Can GST payment be reversed?

CGST Rule 37 specifies that in case the taxpayer flops to pay the supplier for an inward supply of goods or amenities for which the input tax credit has been availed, they must reverse the ITC along with interest payable thereof within 180 days from the date of the issuing of an invoice.