2022 (1) TMI 1213 - HC - GST

Levy of Interest and penalty - reversal of transitional credit - no records to show utilization of such credit - invocation of Section 74 of the TNGST Act, 2017, justified or not? - HELD THAT - The facts on record indicates that though an improper attempt was made by the petitioner to transition the aforesaid credit. The petitioner had however not utilized the same and had also reversed the same on 10.02.2020 after a Show Cause Notice were issued within a period prescribed under Section 73 of TNGST Act, 2017 by invoking Section 74 of the TNGST Act, 2017. However, the Show Cause Notice does not invoke the ingredients to justify the invocation of Section 74 of the TNGST Act, 2017 against the petitioner. Be that as it may, if the Show Cause Notice issued to the petitioner on 09.05.2019 is to be construed as a notice under Section 74 of the TNGST Act, 2017, the Show Cause Notice should have specifically invoked the ingredients of Section 74(1) of the TNGST Act, 2017. However, the said notice merely states that due to the unavailability of documents to prove admissibility of the ITC, Assessment under Section 74 is proceeded. Thus, the Show Cause Notice dated 31.12.2019 does not meet the requirements of Section 74(9) of the TNGST Act, 2017. Before levying penalty or interest, a proper excise was required to be made by a proper officer under Section 74(10) after ascertaining whether the credit was wrongly availed and wrongly utilised. Though under Sections 73(1) and 74(1) of the Act, proceedings can be initiated for mere wrong availing of Input Tax Credit followed by imposition of interest penalty either under Section 73 or under Section 74 they stand attracted only where such credit was not only availed but also utilised for discharging the tax liability. The proper method would have been to levy penalty under Section 122 of TNGST Act, 2017 - the petitioner is not liable to penalty imposed. At the same time, since there was an attempt to wrongly avail credits and utilise the same as and when the tax liability would have arisen, the petitioner is held liable to a token penalty. Petition allowed in part.

Summary

Issues involved:
Challenge to impugned order dated 06.02.2020 regarding transitional credit utilization, applicability of Sections 74, 50(3), 42(10), 42(7), and 47(2) of Tamil Nadu Goods and Services Tax Act, 2017, bonafide intention of petitioner, alternate remedy under Section 107, liability for interest and penalty, proper excise before penalty imposition.

Detailed Analysis:

1. Challenge to Impugned Order: The petitioner contested the impugned order dated 06.02.2020, arguing that despite claiming credit of ?3,86,271 through TRAN-1, it was never utilized. The petitioner reversed the entire transitional credit in the monthly returns for January 2020, asserting that the question of interest and penalty imposition does not arise.

2. Applicability of Sections 74, 50(3), 42(10), 42(7), and 47(2): The petitioner's counsel cited Section 74 of the Act, emphasizing that interest applies only in cases of wrong credit utilization. Reference was made to Section 50(3) regarding undue or excess claims of Input Tax Credit. Additionally, arguments were presented regarding Sections 42(10) and 42(7) to support the petitioner's case.

3. Bonafide Intention of Petitioner: The respondent contended that the petitioner's intention was not bonafide, as the petitioner was not registered as a dealer of furniture products under the TNVAT Act, 2006, yet attempted to avail and transition credits. The respondent highlighted discrepancies in credit availed and transitioned amounts.

4. Alternate Remedy under Section 107: The respondent pointed out that the petitioner had an alternate remedy before the Appellate Commissioner under Section 107 of the Act, suggesting the dismissal of the writ petition on these grounds.

5. Liability for Interest and Penalty: The respondent argued that the petitioner should pay interest and penalty for wrongly availing transitional credit. It was emphasized that interest and penalty were consequential under Section 74 of the TNGST Act, 2017.

6. Proper Excise before Penalty Imposition: The judgment distinguished a Supreme Court case, emphasizing that penalty or interest should be levied only after proper examination by an officer to ascertain wrongful credit availing and utilization. It was noted that penalties under Section 122 should have been applied instead of Sections 73 or 74.

In conclusion, the court partially allowed the writ petition, holding the petitioner liable for a token penalty of ?10,000 due to the gravity of the mistake. The judgment emphasized that penalties should be imposed after confirming both wrongful availing and utilization of credit, and proper excise procedures should be followed before penalty imposition.