The Hon’ble High Court of Madras vide its order dated 14.09.2023 in the matter of Infac India Pvt. Ltd. Vs. The Deputy Commissioner, Office of the Deputy Commissioner of GST and Central Excise, Chennai in W.P. No. 8869 of 2020, held that the deduction of interest while remitting the amount of refund of wrongly transitioned amount under Section 140 was unnecessary and not maintainable, as there was no loss to revenue.  It was found that there is no dispute that the assessee was entitled to, or should have claimed refund of the amount lying unutilized in its Personal Ledger Account under Section 11B of the Central Excise Act, 1944, read with Section 142(3) of the Central Goods and Services Act, 2017.  Further, the assessee could have paid the Central and State GST out of the Input Tax Credit availed on Integrated GST borne by the petitioner instead of utilizing wrongly transitioned credit towards CGST or SGST.  Though, the same was allowed to be re-paid subsequently with the Integrated Input Tax Credit lying unutilized resulting in squaring up of the liability.

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, whereby the respondent herein 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.

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.

Contentions of the Petitioner: –

• 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, it was transitioned in accordance with Section 140 of the CGST Act.
• That the Petitioner had a substantial balance in its Integrated Goods & Services Input Tax Credit Account on the Integrated Goods & Service Tax borne on supplies effected to the petitioner. Therefore, it was submitted that instead of utilizing the amount of Rs. 25,77,523/-, which was wrongly transitioned under Section 140, the petitioner could have utilized Input Tax credit lying unutilized in its Integrated Goods & Services Input Tax Credit Account during the period between 01.11.2018 to 17.02.2019.
• That the issue is revenue neutral and there was no loss to revenue. Moreover,  in view of Section 49(5)(A) of the CGST Act, 2017, the petitioner would have been entitled to utilize 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.

Contention of the Respondent: –

• On the other hand, it was submitted on the behalf of the respondent that in terms of Section 50(3) of the CGST Act, 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%.
• Those tax payers who migrated from VAT and or Central Excise Act, 1944, or Finance Act, 1994 were entitled to carry forward the legacy credit under Section 140 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, in the present case, 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 submissions made and facts of the case and on perusal of Section 142 (Miscellaneous Transition Provisions), found that there is no doubt that the petitioner should have claimed refund of the amount lying unutilized in its Personal Ledger Account under Section 11B of the Central Excise Act, 1944, read with Section 142(3) of the Central Goods and Services Act, 2017.
• It was found 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 as per Section 49(5)(B) of the Central Goods and Services Tax Act, 2017, 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.
• It was found by the Hon’ble Court that the Petitioner could have paid the Central and State GST out of the Input Tax Credit availed on Integrated GST borne by the petitioner. Further, the amount of Rs. 25,77,523 which was wrongly transitioned and was utilized towards Central and/or State GST, was post facto allowed to be re-paid out of Integrated output.  Thus, the tax liability stands squared up.
• The Hon’ble Court noticing that the amount of Rs. 25,77,523/-, which was wrongly transitioned and utilized towards tax liability, has now been refunded, however, a sum of Rs. 9,25,366/- was deducted towards interest, found that Deduction towards interest was unnecessary as there was really no loss to the revenue. Though, 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 observations and findings, allowed the writ petition as prayed for by directing the respondent to refund the aforesaid sum of Rs. 9,25,366/- to the petitioner, by holding that the impugned order dated 31.01.2020 seeking to adjust a sum of Rs. 9,25,366/- towards interest cannot be sustained.

To read the complete judgment 2023 Taxo.online 1034