Charged CGST+SGST instead of IGST (or the reverse): how to fix it

You open a client's file at month-end and spot it. An invoice went out with CGST and SGST, but the goods or services crossed a state line. Or the opposite: IGST was charged on a sale that stayed inside one state. The tax has been paid to the government. The customer has the invoice. What now?

This article is only about the fix. How to decide the right head in the first place is covered in our post on place of supply for B2B services and IGST vs CGST-SGST. Read that first if you are unsure which head was actually correct. Here we assume you have settled that the head you used was wrong.

Two things are on your side. The law has a specific section for exactly this mistake in each direction, and each section also relieves you of interest on the tax now payable. The catch is that the refund time limit is spelled out for only one of the two directions, so that is where to be careful.

The two mistakes

Mistake A: you charged CGST + SGST, but the supply was inter-State. Tax went into the central and state accounts. It should have gone into IGST.

Mistake B: you charged IGST, but the supply was intra-State. Tax went into the IGST account. It should have been CGST + SGST.

The Acts use a different sub-section for each, so work out which one you are in before anything else.

What the Act says

Mistake A: CGST + SGST paid, supply was inter-State

Section 77(1) of the CGST Act, 2017 says a registered person who has paid the Central tax and State tax (or Central tax and Union territory tax) on a transaction considered 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 manner and subject to such conditions as may be prescribed."

So the law gives you a refund of what you paid in the wrong head. You will still owe the IGST that should have been paid in the first place.

The Integrated Goods and Services Tax Act, 2017 adds the interest relief. Section 19(2), IGST Act, says a registered person who has paid central tax and State tax or Union territory tax on a transaction considered by him to be intra-State, but which is subsequently held to be inter-State, "shall not be required to pay any interest on the amount of integrated tax payable."

In plain words: you pay the IGST that is due, and section 19(2) says you are not required to pay interest on that IGST. The relief is worded for a transaction you "considered" to be intra-State that was later held to be inter-State.

Mistake B: IGST paid, supply was intra-State

Section 19(1), IGST Act, 2017 is the mirror. A registered person who has paid integrated tax on a supply considered by him to be inter-State, "but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed."

Section 77(2), CGST Act, gives the matching interest relief: a registered person who paid integrated tax on a transaction considered to be inter-State, but later held intra-State, "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 territory tax payable."

Section 12 of the Union Territory Goods and Services Tax Act, 2017 carries the same idea where the Union territory tax is involved.

So both directions have the same two features: a refund of the head wrongly paid, and no interest on the head now payable. What differs is which Act and which sub-section you cite.

"Subsequently held to be"

Read the phrase carefully. Each section speaks of a transaction "considered by him" to be one kind of supply, "but which is subsequently held to be" the other. The sections do not say who must do the "holding" or how. They are worded around a view you formed and that turned out to be wrong, so do not assume they cover tax you knew was the wrong head when you charged it. If a notice is already in your hands, get advice before replying.

The time limit for Mistake A

For Mistake A, rule 89(1A) of the Central Goods and Services Tax Rules, 2017 fixes the clock. A person claiming refund under section 77 of tax paid on a transaction considered intra-State but later held inter-State "may, before the expiry of a period of two years from the date of payment of the tax on the inter-State supply, file an application electronically in FORM GST RFD-01 through the common portal."

Two points follow.

• The two years run from the date of payment of the tax, not from the invoice date and not from the date you noticed the error. The rule's words are "the tax on the inter-State supply", and it does not say whether that means the original wrong-head payment or a later IGST payment. The cautious course is to count from the earlier, wrong-head payment date.
• The application is in FORM GST RFD-01 on the common portal, either directly or through a Facilitation Centre notified by the Commissioner.

The sub-rule was inserted by Notification No. 35/2021-Central Tax dated 24 September 2021. It also carries a transitional proviso for payments made before it came into force, which only matters for very old errors.

For Mistake B, rule 89(1A) refers only to section 77 of the CGST Act, so by its words it does not cover a refund of IGST under section 19(1) of the IGST Act. Section 20 of the IGST Act applies the CGST Act's refund provisions to integrated tax "so far as may be", which points towards section 54(1) of the CGST Act: an application "before the expiry of two years from the relevant date". The definition of "relevant date" in section 54 has no clause aimed at this situation; its residual clause is "the date of payment of tax". Whether that is how the department treats an IGST wrong-head refund is not something the sections settle. Treat two years from payment as the outer limit you should assume, file early, and have a CA confirm the position on the portal before you file. Nothing in this article relies on any CBIC circular.

The cash cost of the fix

This is the part that surprises people. Nothing in the sections says the two sides net off, so in practice plan on this sequence (a practical view, not a statutory rule):

• You must pay the correct head. For Mistake A, you pay IGST. For Mistake B, you pay CGST and SGST.
• Separately, you claim back the head you paid in error through the refund application.

So for some time you may carry the tax twice. How the correct payment is funded, whether from ledger balance or cash, depends on your ledgers; check that with your CA. Plan for cash being tied up until the refund order comes.

For the section 77 direction (Mistake A), section 54(8)(d) lists "refund of tax in pursuance of section 77" among the refunds paid to the applicant rather than credited to the Consumer Welfare Fund.

What about the invoice you already issued?

The customer holds a tax invoice showing the wrong head. Fixing the money with the government does not fix the paper.

Nothing in the sections on wrong-head tax tells you which document corrects the invoice. A common practical route is a credit note cancelling the wrong-head invoice, followed by a fresh invoice with the right head. That is a practice, not a statutory instruction.

Be aware of the fit. Section 34(1), CGST Act, allows a credit note where "the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply." If the wrong-head invoice carried the same total tax as the right one, it is open to argument whether that test is met. Check the invoice rules and the portal treatment, and take advice, before choosing the document.

If you do issue a credit note, section 34 sets these limits:

• Under section 34(2), the credit note must be declared in the return for the month in which it is issued, and not later than "the thirtieth day of November" following the end of the financial year of the supply, or the date of furnishing the annual return, whichever is earlier.
• The proviso to section 34(2) bars a reduction in your output tax liability if the recipient's input tax credit attributable to the credit note has not been reversed, or, for other recipients, where the incidence of tax has been passed on.
• If a corrected invoice carries more tax than the original, section 34(3) and (4) call for a debit note declared in the return for the month in which it is issued.

Notice the interaction. If the customer is a registered business and has already claimed credit on the wrong-head invoice, the proviso to section 34(2) means your output tax liability cannot be reduced by a credit note until their attributable credit is reversed. Talk to them before you issue anything. A customer charged the wrong head may also find their own return does not match your invoice.

What not to do

• Do not just charge the right head next month and ignore the old one. The old head stays paid in the wrong account and the correct head stays unpaid for the original period.
• Do not wait. In Mistake A the clock runs from the date of payment.
• Do not file the refund without saying why. The application should make clear that it is a wrong-head refund under section 77 CGST or section 19 IGST. How the portal captures this is not covered here.
• Do not edit the old invoice quietly. Use the documents the Act provides, so both sides have a trail.
• Do not assume interest is always waived. The no-interest sentences in section 77(2) CGST and section 19(2) IGST are worded for the tax now payable on a transaction you considered to be the other kind of supply. They say nothing about other defaults in the same return.

What to do now

Have a CA review your facts before you act or file.

FAQs

Does the law cover both directions?
Yes. Section 77 of the CGST Act and section 19 of the IGST Act together cover CGST/SGST paid on what was inter-State, and IGST paid on what was intra-State. Each gives a refund and relief from interest.

Do I pay interest on the correct tax I am now paying?
Section 19(2) IGST (Mistake A) and section 77(2) CGST (Mistake B) say you are not required to pay interest on the tax now payable on the transaction. Confirm your facts fit the wording before relying on it.

How long do I have?
For tax paid as CGST and SGST on a supply later held inter-State, rule 89(1A) allows two years from the date of payment. For IGST paid on an intra-State supply, the rule does not cover it by its words; assume two years from payment under section 54(1) as the safe outer limit and confirm the position before filing.

Is the refund adjusted automatically against my new payment?
Do not assume so. The refund is a separate claim in FORM GST RFD-01, so expect to fund the correct head first.

Do I have to issue a credit note?
It is a common practical route, not something the wrong-head sections require, and section 34(1) fits best where tax charged exceeds tax payable. If you use one, section 34 sets the conditions and the 30 November cut-off following the financial year of the supply, and the customer's credit must be reversed for your output tax to come down.

Can the customer keep the credit they already took?
Their credit follows the law on input tax credit, not your internal fix. If the head shown was wrong, speak to them about what they claimed before you issue a credit note.

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See Also

• GST ITC Blocked Credit — Section 17(5) Complete Guide: What Businesses Cannot Claim
• Do I pay GST under reverse charge when I buy from an unregistered seller?
• We forgot an invoice in GSTR-1 and our buyer cannot see it. What now?