Interest on Wrongly Availed ITC Must Be Computed from the Actual Date of Utilisation: Assessment Modified after Department Accepts Error under Rule 88B(3)

Madras High Court Upholds Assessee’s Right to Precise Interest Computation Under Section 50(3)

AUTHOR: CA Atul Gupta

CASE: Jayashree Enterprises v. Assistant Commissioner (ST) (Madras High Court) dated 01.10.2026 CITATION: 2026 Taxo.online 3252

1. BACKGROUND

The computation of interest under the Central Goods and Services Tax Act, 2017 (CGST Act) has been a persistent source of litigation, particularly concerning the period for which interest is levied on wrongly availed and utilised Input Tax Credit (ITC). Section 50(3) of the CGST Act, read with Rule 88B(3) of the CGST Rules, 2017, prescribes the methodology for calculating such interest. Disputes frequently arise when assessing authorities compute interest from incorrect dates, often leading to inflated liabilities.

The Madras High Court’s ruling in Jayashree Enterprises v. Assistant Commissioner (ST) (2026 Taxo.online 3252) reaffirms the assessee’s right to accurate interest computation and the revenue’s obligation to correct inadvertent errors in assessment orders, underscoring procedural fairness and statutory compliance.

2. FACTS OF THE CASE

Jayashree Enterprises (the petitioner) challenged an assessment order dated 12 February 2025 passed under the CGST Act, which had been upheld by the Writ Court on 17 June 2026. The core dispute pertained to the calculation of interest on wrongly availed and utilised ITC. The original assessment computed interest from an incorrect date, resulting in a higher liability than statutorily mandated.

During the admission hearing of the Writ Appeal on 24 September 2026, the petitioner submitted a revised computation sheet. It showed that interest should have been calculated from the actual date of utilisation of the wrongly availed ITC (14 August 2023) to the date of its reversal (24 October 2024), a period of 437 days, rather than the erroneous period considered in the original assessment. The revised computation was:

REVISED INTEREST COMPUTATION Interest = Amount of ITC wrongly availed and utilised × Rate of Interest × Number of days / 365 = ₹48,643 × 24% × 437 / 365 = ₹13,977

On instructions, the Assessing Authority (Assistant Commissioner (ST), Udumalpet (South) Circle, Tiruppur District) acknowledged the inadvertent error in the original assessment. In a proceeding dated 28 September 2026, the authority confirmed that:

• The base amount of ₹48,643 correctly reflected the wrongly availed and utilised ITC.
• The dates of utilisation (14 August 2023) and reversal (24 October 2024) tallied with the department’s records.
• The revised computation of ₹13,977 was mathematically and factually accurate as per Rule 88B(3).

The authority submitted a revised summary of liability reflecting the corrected interest, tax and penalty, and sought the Court’s directions for modification of the assessment order.

3. ISSUES

1. Whether the original assessment order was vitiated by an inadvertent error in the computation of interest under Section 50(3) read with Rule 88B(3).
2. Whether the Assessing Authority’s acceptance of the petitioner’s revised computation and acknowledgment of the error warranted modification of the assessment order.
3. Whether the Court could direct the Assessing Authority to rectify the assessment order to reflect the correct interest liability, thereby closing the Writ Appeal.
4. CONTENTIONS

PETITIONER’S ARGUMENTS Statutory Mandate for Interest Computation •    Section 50(3) read with Rule 88B(3) prescribes a specific formula for interest on wrongly availed and utilised ITC. •    Interest runs from the date of utilisation to the date of reversal; the original assessment deviated by using an incorrect date, inflating the liability. Fairness and Equity •    The revised computation was a substantive correction, not a mere technicality, and it materially affected the liability. •    The revenue’s acceptance of the computation demonstrated the bona fides of the claim and warranted rectification of the assessment. Natural Justice •    No precedent was expressly cited, but the argument rested on the principle that assessees must be allowed to correct errors, particularly where the revenue itself acknowledges the mistake.

REVENUE’S ARGUMENTS Acknowledgment of Error •    The Assessing Authority unconditionally acknowledged the inadvertent error in the original order. •    It confirmed the base amount of ₹48,643, the dates of utilisation and reversal, and the revised interest of ₹13,977 as correct under Rule 88B(3). Revised Liability •    A revised summary of liability reflecting corrected interest, tax and penalty was filed, showing willingness to align the assessment with the statute. No Prejudice to Revenue •    The revenue did not contest the claim, as the correction did not prejudice the exchequer. •    The Court commended this fair approach as an example of collaborative tax administration.

5. HELD

The Madras High Court disposed of the Writ Appeal with the following directions and observations:

1. Modification of Assessment Order

The assessment order was liable to be modified to the extent of the interest computation. The Assessing Authority was directed to rectify the order within one week from the date of judgment (1 October 2026), recalculating interest at ₹13,977 in accordance with Section 50(3) and Rule 88B(3).

THE COURT’S DIRECTION “In light of the aforesaid, the assessment order is liable to be modified to the extent of the interest computation and we direct the needful be done by the Assessing Authority within a period of one week from today.”

2. Closure of Writ Appeal

Rectification of the assessment order would suffice to address the petitioner’s grievances. Petitioner’s counsel confirmed that no further issues survived, and the Court closed the appeal with liberty to pursue statutory remedies if any other issues arose.

3. Appreciation of Revenue’s Fair Approach

The Court placed on record its appreciation for the Assessing Authority’s fair and pragmatic approach in acknowledging the error and revising the liability.

THE COURT’S OBSERVATION “We place on record our appreciation to the Assistant Commissioner (ST) Udumalpet (South) Circle, Chithrakoodam, Udumalpet, Tiruppur District for the fair approach adopted in revising the assessment by taking note of the inadvertent error that had occurred at the time of original assessment.”

4. Liberty for Statutory Remedies

The petitioner was granted liberty to challenge any other issues arising from the assessment by way of statutory appeal or revision within two weeks from the date of judgment. Any such appeal, if filed, is to be entertained by the appellate authority after ensuring compliance with statutory conditions, excluding the period of limitation during the pendency of the Writ Appeal.

6. EXTRACTS OF RELEVANT PROVISIONS

SECTION 50(3), CGST ACT, 2017 “Where the input tax credit has been wrongly availed and utilised, the registered person shall be liable to pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.”

RULE 88B(3), CGST RULES, 2017 “The interest under sub-section (3) of section 50 shall be calculated from the date of utilisation of such wrongly availed input tax credit till the date of its reversal.”

7. KEY TAKEAWAYS

1. Statutory Compliance in Interest Computation

Interest on wrongly availed and utilised ITC must be computed from the date of utilisation to the date of reversal; deviations are liable to be corrected.

Practical Implication: Scrutinise interest computations in assessment orders and challenge discrepancies.

2. Procedural Fairness and Revenue’s Duty to Correct Errors

The revenue is obliged to correct inadvertent errors, even when acknowledged post-assessment; the Court’s appreciation sets a precedent for collaborative administration.

Practical Implication: Engage with authorities to rectify errors; officers should acknowledge and correct mistakes pragmatically.

3. Judicial Intervention in Rectifying Assessments

Courts will intervene where assessments deviate from the statute, particularly when the revenue acknowledges the error.

Practical Implication: Document discrepancies and seek judicial redress where errors are not corrected.

4. Liberty to Pursue Statutory Remedies

The Court granted liberty to pursue statutory appeal or revision within a fixed timeframe, with limitation excluded for the period of the Writ Appeal.

Practical Implication: Pursue statutory remedies on time while recognising the Court’s role in granting relief where procedural lapses occur.

5. Importance of Accurate Record-Keeping

The revised computation was accepted because it was backed by accurate records of utilisation and reversal dates.

Practical Implication: Maintain meticulous records of ITC utilisation and reversal.

8. CONCLUSION

The Madras High Court’s judgment in Jayashree Enterprises v. Assistant Commissioner (ST) (2026 Taxo.online 3252) reinforces statutory compliance, procedural fairness and equitable tax administration. By directing rectification of the assessment order to reflect the correct interest computation, the Court has signalled that inadvertent errors must be promptly corrected and that assessees are entitled to accurate assessments under the law. For tax professionals and businesses, the ruling is a reminder to scrutinise assessment orders, keep precise documentation, and use statutory and judicial remedies where needed. The Assessing Authority’s collaborative approach sets a benchmark for revenue officers.

For further analysis and case law, visit https://taxo.online.