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2024 (6) TMI 667 - HC - GSTLegality of the imposition of penalty u/s 74(1) and 74(5) of the CGST Act, 2017 - Input Tax Credit (ITC) availed wrongly but not utilized - It is only after the issuance of the show cause notice, the petitioner has reversed the amount - HELD THAT - The impugned order sustaining the penalty under Section 74(1) and 74(5) of the CGST Act is unsustainable. Reliance placed in an identical issue in M/S. AATHI HOTEL, VERSUS THE ASSISTANT COMMISSIONER (ST) (FAC) , NAGAPATTINAM DISTRICT. 2022 (1) TMI 1213 - MADRAS HIGH COURT where it has been that ' 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 imposition of penalty under the peculiar facts and circumstances of the case is unjustified - considering the fact that the petitioner has availed input tax credit, which was not eligible to be availed, but could have resulted in wrong utilization of input tax credit, a token penalty of Rs. 10,000/- is imposed on the petitioner - petition allowed.
Issues Involved:
1. Wrong availment of transitional credit. 2. Imposition of penalty under Section 74(1) and 74(5) of the CGST Act, 2017. 3. Reversal of input tax credit. 4. Procedural errors and their impact on penalty. 5. Interpretation of Section 74 of the CGST Act. Detailed Analysis: 1. Wrong Availment of Transitional Credit: The petitioner, a Central Excise Assessee, transitioned various amounts as input tax credit under Section 142 of the CGST Act, 2017. The Order-in-Original confirmed the proposals in the show cause notice, detailing instances of wrong availment of transitional credit, including credit on stock held in Andhra Pradesh, unsupported credit in Trans-1 returns, excess credit than available, and ineligible credit on excise duty paid on capital goods. The petitioner reversed a significant portion of the credit post issuance of the show cause notice. 2. Imposition of Penalty Under Section 74(1) and 74(5) of the CGST Act, 2017: The second respondent imposed penalties under Section 74(1) and 74(5) of the CGST Act, 2017, for wrong availment of transitional credit. The penalties included amounts for ineligible credit availed and carried forward, unsupported credit, and excess credit, totaling Rs. 16,46,334 and Rs. 1,69,190 respectively. The first respondent upheld these penalties but set aside the interest levied under Section 50 of the CGST Act. 3. Reversal of Input Tax Credit: The petitioner argued that since the input tax credit was reversed and remained unutilized, the imposition of penalties was unwarranted. The petitioner contended that there was no actual loss to the revenue, and the balance in the Electronic Credit Ledger stayed above the disputed amount. 4. Procedural Errors and Their Impact on Penalty: The petitioner claimed that the procedural errors were unintentional and due to misunderstanding of the newly introduced CGST Act during its initial period. The petitioner emphasized that the show cause notice did not disclose foundational allegations of fraud or willful misstatement, which are essential for imposing penalties under Section 74. 5. Interpretation of Section 74 of the CGST Act: The court noted that Section 74 of the CGST Act requires a revenue loss due to the act of the assessee. The term "Input Tax Credit availed or utilized" implies that the credit must be used for reducing tax liability. The court referenced previous judgments, including the Supreme Court's decision in Union of India v. Ind-Swift Laboratories Limited, which distinguished between mere availment and utilization of credit. The court held that penalties under Section 74 are applicable only when credit is both availed and utilized. Conclusion: The court found the imposition of penalties under Section 74(1) and 74(5) of the CGST Act unsustainable, as the petitioner had not utilized the credit. The court imposed a token penalty of Rs. 10,000, considering the potential for wrong utilization. The writ petition was allowed, setting aside the penalties imposed by the respondents, and no costs were awarded. The connected miscellaneous petitions were also closed.
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