The Hon’ble High Court of Madras vide its order dated 14.09.2023 in the matter of Infac India Private Ltd., Rep. by its Manager – Finance & GST G. Lakshmi Prabha Vs. The Deputy Commissioner, Office of the Deputy Commissioner of GST and Central Excise, Chennai in W.P. No. – 8869 of 2020, held that deduction of interest while refunding the amount wrongly transitioned under Section 140 of the CGST Act, 2017 when there is no loss to revenue, was unnecessary.

The Petitioner filed the petition before the Hon’ble High Court challenging the Order-in-Original No. 02/2020 (RF) dated 31.01.2020 bearing reference C.No.IV/10/14/2019-RF of the respondent, by which the respondent has sanctioned a refund of Rs. 16,52,157/-, after adjusting a sum of Rs. 9,25,366/- as interest due from the petitioner on the amount utilized by the petitioner.

Petitioner’s Submissions: –

• It was submitted on the behalf of the petitioner that it could have asked for refund of the amount that was lying unutilized in the Personal Ledger Account under the provisions of the Central Excise Act, 1944, as on 30.06.2017.
• However, by mistake, the petitioner transitioned the amount lying in its Personal Ledger Account on 23.08.2017 as if it were an Input Tax lying unutilized, in accordance with Section 140 of the Central Goods and Services Tax Act, 2017.
• It was submitted that the Petitioner had a substantial balance in its IGST input tax credit account on the IGST borne of supplies made to the petitioner. This amount could have been used instead of utilizing the amount of Rs. 25,77,523/-, which was wrongly transitioned under Section 140.  Therefore, the issue is neutral and there is no loss to revenue.
• Further, in terms of Section 49(5) (B) of the CGST Act, 2017, the Input Tax Credit availed on integrated tax has to be first utilized towards integrated tax liability and the remaining amount, if any, can be utilized towards Central Tax or State Tax liability as the case may be. Moreover, in terms of Section 49(5)(A), the petitioner would have been entitled to utilized the proportionate Integrated Goods & Services Input Tax Credit towards tax liability and rightly claim refund under Section 142(3) of the Central Goods and Services Tax Act, 2017.

Respondent’s Submissions: –

• On the Other hand, it was submitted on the behalf of the Respondent that as per Section 50(3) of the CGST Act, 2017, for any excess claim of Input Tax credit or excess reduction in output tax liability, interest shall be paid at such rate not exceeding 24%. GST Acts contemplates to match the Input Tax credit availed by the recipient with the details of outward supply of supplier and the same have been explained in Sections 42 and 43 of the Central Goods and Services Tax Act, 2017.
• It is submitted that the petitioner had an option to carry forward legacy credit in its electronic credit ledger by filing TRAN-1. However, the petitioner had carried forward the legacy credit along with PLA balance of Rs. 25,77,523/- in contravention of provisions of the Central Goods and Services Tax Act, 2017 for transitional credit.
• Therefore, it was submitted that the amount has been rightly credited back to the petitioner after adjusting a sum of Rs. 9,25,366/- towards interest on amount of wrong transitioning and utilization of amount in its Personal Ledger Account into electronic credit ledger, which the petitioner was not entitled to do so.

Held: –

• The Hon’ble Court after considering the facts of the case and the submissions made, considered the provisions of Section 142 ‘Miscellaneous Transition Provisions’ and found that the fact also remains that the petitioner had sufficient balance of Input Tax Credit availed on Integrated Tax as borne by the Petitioner on the supplies made to the Petitioner. The aforesaid amount has to be first utilized towards the Integrated Tax liability and thereafter towards Central Tax liability and the balance if any lying unutilized towards State Tax
• That in the present case the Input Tax Credit that was available during the period in dispute between 01.11.2018 to 17.02.2019 was ranging from Rs. 10,16,52,423/- to Rs. 5,19,08,095/-, the petitioner could have paid the Central and State GST out of the Input Tax Credit availed on Integrated GST borne by the petitioner.
• It was noticed by the Hon’ble High Court that the amount of Rs. 25,77,523/- was wrongly transitioned under Section 140 of the GST Act, though, it has been allowed to be re-paid later out of Integrated Input Tax Credit which was lying unutilized. Thus, the tax liability stands settled.
• The amount of Rs. 25,77,523/- which was wrongly transitioned, has now be refunded, however, while refunding the amount, a sum of Rs. 9,25,366/- was deducted towards interest;
• It was found by the Hon’ble Court that the said deduction of interest was unnecessary as there was no loss to revenue. It would have been different, if tax liability was adjusted earlier out of Input Tax credit availed on State GST borne and was utilized for payment of Central GST by the petitioner under the provisions of the Central Goods and Services Tax Act, 2017.

The Hon’ble Court with the above observation and findings, allowed the writ petition by modifying the impugned order to the extent it seeks to adjust the amount of interest of Rs. 9,25,366/-.  The Respondent is directed to refund the aforesaid sum of Rs. 9,25,366/- to the petitioner within a period of eight (8) weeks from the date of receipt of a copy of this order.