Court holds that payment of GST under `CGST' and `SGST' instead of `IGST' does not amount to fraud; directs authorities to transfer amount without invoking stringent recovery provisions.
In a significant judgment dated October 30, 2026, the Bombay High Court (Division Bench comprising Justices M. S. Karnik and Sandesh D. Patil) delivered a landmark ruling in the case of DHR Holding India Private Limited vs. Union of India and Others, clarifying the treatment of GST payments made under incorrect tax heads and the applicability of Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act).
The petitioner, DHR Holding India Private Limited, engaged in facilitating sales of medical equipment and providing support services to overseas group companies, had paid GST amounting to Rs. 7,65,03,407 under the `CGST' and `SGST' heads on transactions which should have been classified under the `IGST' head. Subsequently, the Revenue issued a show-cause notice under Section 74 of the CGST Act demanding recovery of the same amount under `IGST' and imposing penalties for alleged suppression and misclassification.
The petitioner challenged this order, contending that since the GST was paid in full, albeit under the wrong tax heads, the invocation of Section 74-which deals with recovery in cases of fraud, wilful misrepresentation, or suppression-was unwarranted. They argued that the GST law contemplates intra-State supplies attracting CGST and SGST, while inter-State supplies attract IGST, but the tax liability remains the same in either case. Hence, the payment under the wrong heads should be rectified by transfer rather than recovery or penalty.
The Revenue countered that CGST, SGST, and IGST are credited to distinct sovereign accounts and that the petitioner had systematically misclassified transactions and filed incorrect returns, amounting to suppression under Section 74. They also argued that the petitioner should have applied for a refund and paid the correct tax under IGST.
Upon hearing the parties and analyzing relevant statutory provisions, the Court held that:
- The petitioner undisputedly paid the GST amount in full under CGST and SGST heads, which cannot be ignored merely because it was not paid under IGST.
- Section 74 of the CGST Act cannot be invoked in the absence of fraud, wilful misrepresentation, or suppression, which was not established in this case.
- The relevant provisions of Section 77 of the CGST Act and Section 19 of the IGST Act explicitly provide for refund or adjustment where tax is paid under the wrong head but the supply classification changes subsequently.
- Rule 4(1) of the GST Refund Rules mandates the proper officer to sanction refund or adjustment when satisfied about the correctness of the claim.
- The Revenue authorities have an obligation to transfer the amount paid under CGST and SGST to the IGST head instead of initiating recovery proceedings under Section 74.
- The Kerala High Court's precedent in Saji S. v. Commissioner, State GST supports internal adjustment rather than penal recovery in such scenarios.
- The Supreme Court's ruling in Tata Steel Limited v. Union of India emphasized that Section 74 notices require foundational facts demonstrating fraud or wilful misrepresentation, which were absent here.
Accordingly, the Court quashed the impugned order demanding recovery under Section 74 and directed the petitioner to file an application within three weeks for the transfer of the GST amount from CGST and SGST heads to the IGST head. The Revenue was directed to promptly effect this transfer upon receipt of the application. The Court clarified that this judgment does not preclude the Revenue from pursuing recovery of any additional amounts legitimately payable beyond the Rs. 7.65 crore already paid.
This ruling provides clarity and relief for taxpayers who inadvertently pay GST under incorrect heads but have discharged their full tax liability, reinforcing that such errors do not automatically attract penal proceedings unless accompanied by fraudulent intent or suppression.
Bottom Line:
GST - Payment of tax under wrong heading - Amount paid under 'CGST' and 'SGST' headings instead of 'IGST' - Authorities directed to transfer the amount to 'IGST' heading without invoking Section 74 of the CGST Act, 2017, as there was no element of fraud or suppression.
Statutory provision(s):
Central Goods and Services Tax Act, 2017 Section 74, Section 77; Integrated Goods and Services Tax Act Section 19; GST Refund Rules Rule 4(1)
DHR Holding India Private Limited v. Union of India, (Bombay)(DB) : Law Finder Doc Id # 3017457
