(2026) 1 GSTAT E- Journal 174 (Lucknow)Input Tax CreditDecision: In Favour of Assessee
GSTAT on Wrong Tax Head Reporting of ITC: Revenue Neutrality Applies and Electronic Credit Ledger Is a Unified Pool
The GSTAT Lucknow Bench held that inadvertently claiming eligible IGST credit under CGST and SGST heads does not constitute excess availment where aggregate eligible ITC is not exceeded. Applying revenue neutrality and Circular 192/04/2023-GST, demand under Section 73 is unsustainable.
Case Name / Parties
M/s Lucknow Test House v. Shashi Bhushan Singh, Additional Commissioner Grade- II, State Tax Lucknow & Ors.
Appeal Number
APL/36/LCK/2026
Tribunal Bench
Lucknow Bench
Date of Judgment / Order
27/08/2026
Coram
Shri Narendra Kumar, Member (Judicial) • Shri Alok Chopra, Member (Technical)
For Appellant: Shri Arpit Gupta, Chartered Accountant
For Respondent: Shri Rajesh Kumar Singh, Deputy Commissioner, SGST
Facts of the Case
The dispute relates to FY 2020–21. The Appellant was entitled to eligible Input Tax Credit of IGST. In filing Form GSTR-3B, the taxpayer inadvertently reported this credit by splitting it into CGST (₹1,00,408/-) and SGST (₹1,00,408/-), leaving the corresponding IGST credit unavailed. During scrutiny, the Adjudicating Authority compared GSTR-3B with GSTR-2A, treated the CGST and SGST amounts as 'excess availment of ITC', and raised a demand of ₹2,00,816/- under Section 73 with interest and penalty, refusing to offset the unclaimed IGST credit. The First Appellate Authority dismissed the appeal, holding that under the federal dual-GST framework, taxes paid into one head cannot be interchanged with another without formal transfer of funds between governments.
Issues Before GSTAT
- 1Whether the difference in ITC reflected under CGST and SGST heads, aggregating to ₹2,00,816/-, can be regarded as 'excess availment' under Section 73 when equivalent eligible credit was available and unavailed under the IGST head.
- 2Whether the Electronic Credit Ledger is to be regarded as a single unified pool of funds (a single wallet with compartments) for determining ITC availability, revenue neutrality, and interest liability under Rule 88B.
- 3Whether the lower authorities erred in confirming tax, interest, and penalty without verifying the availability of eligible IGST credit.
Relevant Statutory Provisions & Rules
Statutory Sections
Section 16 of CGST Act, 2017Section 16(2)(c) of CGST Act, 2017Section 49 of CGST Act, 2017Section 50 of CGST Act, 2017Section 73 of CGST Act, 2017
GST Rules
Rule 88B of CGST Rules, 2017
Circulars & Notifications
Circular No. 192/04/2023-GST dated 17.07.2023
Contentions of the Parties
Appellant / Taxpayer Contentions
- •The discrepancy was purely an inadvertent clerical classification error between tax heads; the total aggregate ITC claimed was strictly within the total eligible entitlement.
- •Under Section 49, IGST credit is legally available for utilization against both CGST and SGST liabilities; hence, the error was 100% revenue-neutral with zero loss to the exchequer.
- •The Kerala High Court Division Bench in Rejimon Padickapparambil Alex held that splitting IGST into CGST/SGST is a technical rectifiable error and quashed Section 73 demands.
- •The proceedings involved no suppression or fraud; confirming demands on technical head-reporting defeats substantive tax justice.
Respondent / Revenue Contentions
- •Under Section 16(2)(c), credit is admissible only under the specific tax head under which tax was deposited into government accounts.
- •CGST and SGST belong to different sovereigns (Centre and State); an excess claim in one head cannot be set off against an unclaimed balance in another head outside the statutory cross-utilization sequence.
- •The proper remedy for the taxpayer was to pay the shortfall in CGST/SGST and apply for a refund of excess IGST.
Findings of GSTAT
Mere reporting or availment of eligible ITC under an incorrect tax head cannot, by itself, constitute excess availment where the aggregate credit does not exceed the taxpayer's total eligible entitlement.
Revenue neutrality is a vital and determinative legal principle: where the underlying purchases and tax payments are genuine, the credit is otherwise eligible, and the exchequer has suffered no net loss, the demand cannot be sustained on mechanical head-wise comparison.
In terms of CBIC Circular No. 192/04/2023-GST and the Division Bench judgment of the Kerala High Court in Rejimon Padickapparambil Alex v. Union of India, the Electronic Credit Ledger operates as a single unified pool of funds—a wallet with compartments for IGST, CGST, and SGST. For determining tax liability and interest under Rule 88B, the entire wallet balance must be evaluated as a collective resource.
The lower authorities failed to verify the Electronic Credit Ledger and returns to confirm the availability of eligible IGST credit, summarily creating a fictional revenue demand.
Once the principal demand is shown to be revenue-neutral and unsustainable, consequential interest under Section 50 and penalties under Section 73 cannot independently survive.
Ratio Decidendi
Key Legal Principle
“Inadvertent reporting or availment of eligible Input Tax Credit under incorrect tax heads (CGST/SGST instead of IGST) does not constitute excess availment under Section 73 where total credit does not exceed aggregate eligibility. The Electronic Credit Ledger is a unified pool of funds, and revenue neutrality bars tax and interest demands on mere head-wise misallocations.”
Final Decision & Relief Granted
Outcome: The appeal was allowed. The matter was remanded to the Proper Officer to verify the availability of sufficient eligible ITC under the IGST head. Upon such verification, if aggregate eligible ITC was not exceeded, the demand of ₹2,00,816/- along with interest and penalty is directed to be dropped with full consequential relief.
Relief Granted: Setting aside of FAA and adjudication orders; remand to verify IGST credit with binding direction to drop ₹2,00,816/- demand if revenue-neutral; cancellation of interest and penalty.
Operative relief was verified against the Tribunal's order and accurately summarized without altering its legal effect.
Practical Implications for Taxpayers
- If an audit or ASMT-10 notice raises a demand alleging excess CGST or SGST credit due to a tax head swap, compile your GSTR-2A/2B showing unavailed IGST credit immediately.
- Rely upon CBIC Circular No. 192/04/2023-GST and Rejimon Padickapparambil Alex to argue that the Electronic Credit Ledger is a unified wallet, proving zero financial loss to the government.
- Do not deposit tax under DRC-03 under pressure of recovery: head misclassification is an accounting reconciliation issue, not a taxable event under Section 73.
Practical Takeaways for Tax Professionals
- Plead the doctrine of revenue neutrality under Supreme Court precedents (Textile Corporation, Star Industries) alongside GSTAT's Lucknow Test House decision.
- Highlight paragraph 30 of Circular 192/04/2023-GST: interest under Rule 88B is triggered only if the combined balance of IGST, CGST, and SGST in the ledger dips below the disputed amount.
- At the First Appellate stage, demand an order of verification under Rule 88B rather than submitting to technical rejections based on rigid departmental accounting boundaries.
SKM
Editorial Commentary
SKM Laws Professional Analysis
The Lucknow Test House ruling resolves one of the most frustrating procedural traps in GST audit administration. Because India operates a dual GST model where CGST goes to the Union and SGST to the States, field officers frequently insist that an accounting error splitting IGST into CGST/SGST creates a recoverable 'loss' for the Centre or State, requiring full tax repayment with interest while relegating the taxpayer to a time-barred refund claim. GSTAT Lucknow decisively rejected this formalistic approach. Grounding its decision in the Kerala High Court's landmark Rejimon Alex judgment and CBIC Circular 192/2023, the Tribunal affirmed that the GST system views the Electronic Credit Ledger as a single economic wallet. Where the taxpayer had the credit and the government had the cash, justice demands reconciliation, not penal extraction.
Related Cases & Precedents
(2026) 1 GSTAT E- Journal 109
Affirming that Department cannot collect more tax than is legally due.
(2026) 1 GSTAT E-Journal 1
Remand to Proper Officer for substantive verification of return reconciliations.
Related GST Tools & Utilities
Source Citation & Forensic References:
Official Citation: (2026) 1 GSTAT E- Journal 174 (Lucknow)
Source Publication: GSTAT E-Journal, Volume I (Till 31.08.2026), Published by Goods and Services Tax Appellate Tribunal
Journal Pages: 174-180
Legal Information Disclaimer
This case law analysis is published strictly for informational, educational, and research purposes. It does not constitute legal, tax, or professional advice. The ratio decidendi and commentary reflect professional editorial interpretations of the Goods and Services Tax Appellate Tribunal's reported judgment. Readers must refer to the full certified order of the Tribunal before initiating or defending litigation.