Kerala GST Tribunal: No Section 73 Demand When Excess Output Tax Paid Exceeds Disallowed ITC

Following scrutiny of the appellant’s 2017–18 returns, the proper officer issued a notice under Section 73 of the KGST/CGST Acts and confirmed demands relating to allegedly ineligible ITC, sales returns unsupported by portal-declared debit/credit notes, and interest for late filing.

The first appellate authority rejected the appeal.

The appellant argued, among other things, that excess output tax paid exceeded the ITC disallowed, that it had produced documents supporting the sales returns, and that the late-filing interest demand was inadequately particularised.

The Tribunal found that the first appellate authority had rejected the appellant’s detailed submissions without meaningful reasons.

1. Whether a notice under Section 73 could be issued for alleged short payment arising from ineligible ITC where the shortfall was offset by excess output tax paid

2. Whether refund of excess output tax paid was subject to the test of unjust enrichment

3. Whether the demands relating to sales returns and late-filing interest were sustainable on the grounds and particulars stated in the notice

Section 73 of the KGST/CGST Acts applies where tax has not been paid or has been short-paid, or ITC has been wrongly availed or utilised; the Tribunal held that no short payment warranting Section 73 proceedings arises where excess output tax paid exceeds the ITC disallowed.

Section 34(2) concerns declaration of credit-note details in returns, but the Tribunal held that, for the 2017–18 period, credit/debit notes could not be invalidated solely because they were not uploaded to the portal.

The Tribunal relied on Section 54(8)(c) in concluding that the excess payment at issue was not subject to unjust enrichment.

It also relied on Rejimon Padickaparamabil Alex v. Union of India, 2024-TIOL-2024-HC-KERALA-GST, for the principle that a tax demand under Section 73 requires a short payment or wrongful availment/utilisation of credit.

Further, a show-cause notice must state the basis and particulars of the proposed demand sufficiently to permit an effective response; a demand confirmed on a ground not set out in the notice, or an unparticularised interest demand, is unsustainable.

The Tribunal held that the excess output tax paid—an amount greater than the ITC disallowed—meant there was no net short payment warranting Section 73 proceedings; it rejected the Revenue’s contention that the appellant had to pay the demand first and pursue a separate refund.

It also rejected the unjust-enrichment objection, treating the excess payment as falling within the refund category identified under Section 54(8)(c).

As to sales returns, the notice alleged absence of supporting documents, whereas the confirmed demand rested on the supplier’s failure to declare the debit note in its returns—a ground not stated in the notice.

The Tribunal further held that portal non-declaration alone did not invalidate the notes for the relevant period.

Finally, the interest notice did not identify the relevant months, tax amounts, or periods, and the notice and assessment order stated materially different interest totals without explaining the calculation; the demand therefore failed for vagueness and breach of natural justice.

It also held the sales-return and late-filing interest demands unsustainable.

The appeal was allowed, the order-in-appeal was set aside, and consequential relief was granted.