FACTS OF THE CASE:
Utpal Das, (“the petitioner”), is a registered taxpayer under the GST provisions, filed his GSTR-09 return for the tax period from April 2018 to March 2019. However, due to a clerical error, he wrongly availed excess Input Tax Credit (ITC).
The Authority issued a notice in Form GST DRC-01A on February 22, 2021, identifying the liability, including interest and penalty, for this excess ITC.
Upon receiving the notice, the petitioner promptly acknowledged the mistake and voluntarily reversed the excess ITC by debiting his electronic credit ledger through Form GST DRC-03 on March 20, 2021. Despite this, the authority issued a show cause notice under Section 73 of the Central Goods and Service Act (“the CGST Act”) on March 23, 2021, imposing both interest and penalty on the petitioner.
The petitioner argued that after receiving the notice in Form GST DRC-01A dated 22.02.2024 they voluntarily debited their electronic credit ledger using Form GST DRC-03 to reverse the excess ITC and they had mistakenly availed due to a clerical error in filing GSTR-09.
The petitioner contended that this action should have resolved the matter, as the ITC had been reversed before any proceedings under Section 73 of the CGST Act were initiated.
The petitioner also argued that interest under Section 50(3) of the CGST Act should not be levied unless the ITC was both wrongfully availed and utilized and pointed out that, sufficient credit was available in the electronic credit ledger, which means the ITC was not utilized.
The petitioner relies on various High Courts judgments such as Ranjan Sarkar v. Assistant Commissioner of State Tax, Grundfos Pumps India (P.) Ltd. v. Joint Commissioner of GST & Central Excise, Deepak Sales Corporation., v. Union of India that supported the interpretation that interest is not chargeable on unutilized ITC. Thus, contended that the imposition of interest and penalty was improper and should be set aside.
The respondent argued that the petitioner wrongfully availed excess ITC by making an error in their GSTR-09 filing, which amounted to a violation under the GST Act and also emphasized that the petitioner’s reversal of ITC after receiving notice did not absolve them of liability for the interest and penalty.
The respondent further argued that, under Section 50(3) of the CGST Act, interest is applicable on any ITC that is wrongly availed, regardless of whether it was utilized or not, and contended that mere reversal of the excess credit does not negate the liability to pay interest on the amount that was wrongly availed, as the credit had been available for potential use.
ISSUE:
Whether interest can be levied on excess ITC that was mistakenly availed but not utilized and voluntarily reversed by the taxpayer before any proceedings were initiated under the CGST Act, 2017?
HELD:
The Hon’ble Calcutta High Court held that the mere availability of excess ITC even if not utilized, does not attract interest under Section 50(3) of the CGST Act.
The Court clarified that, interest is payable only on ITC that has been both wrongfully availed and utilized. Therefore, if the excess ITC remains in the electronic credit ledger and is not used for tax payment, no interest liability arises, The Court found that since the petitioner had reversed the excess ITC before utilizing it, they were not liable to pay interest. This decision aimed to ensure that businesses are not unduly penalized for ITC that they have not actively used to offset tax liabilities,
The Court emphasized that penal provisions should not be applied mechanically, especially when the taxpayer has voluntarily rectified the error and the petitioner had reversed the ITC promptly upon discovering the mistake, which indicated a lack of malintent.
Thus, the Court held that the imposition of penalties in such situations would be unjust, especially in the absence of fraud or intentional misconduct.
Case Name: UTPAL DAS V. STATE OF WEST BENGAL WPA NO. 18241 OF 2022 JULY 18, 2024 (HIGH COURT – CALCUTTA)
Taxo Citation: 2024 Taxo.online 2077
