2024 (10) TMI 1016 - HC - GST

Levy of interest and penalty - wrongly availed and utilized Input Tax Credit (ITC) - Whether the petitioner can be called upon to make payment of interest upon the petitioner not complying with the notice issued in Form DRC- 01A as regards payment of interest, prior to issuance of the show cause under Section 73 of the said Act? HELD THAT - Admittedly, in this case on the issuance of a notice in Form DRC -01A the petitioner had debited its credit ledger by indicating that by reasons of error committed during filling of GSTR 09 the petitioner had wrongly availed the ITC. It is the petitioner s case that the ITC, though wrongfully availed, was not utilized by him. According to the petitioner unless, the ITC is wrongfully availed and utilized, in terms of Section 50(3) of the said Act interest is not leviable - the said section had been amended by Finance Act of 2022 with retrospective effect from 1st July 2017. The petitioners had enough credit in its electronic credit ledger, a sum in excess of Rs.5,00,000/- which incidentally was the approximate ITC amount availed, for the relevant period. It is also noticed that in somewhat situation a Coordinate Bench of this Court in the case of M/S. LARSEN TOUBRO LIMITED VERSUS STATE OF WEST BENGAL ORS 2022 (12) TMI 1496 - CALCUTTA HIGH COURT had concluded that unless a registered tax payer avails and utilized ITC, interest cannot be levied. In this case it is noticed that the petitioner had debited its electronic credit ledger to reverse the ITC availed. A perusal of Section 49(4) of the said Act would clarify that the amount available in the electronic credit ledger, may be used for making payment towards output tax under the Act. Thus, from the tenor of Sections 50(1) proviso, read with Section 49, read with Rule 86 and 87 of the said Rules, it would be apparent that payment of interest and penalty can only be made by debiting the electronic cash ledger and not from the electronic credit ledger. The payment made on 20th March 2021 in form GST DRC-03 is by debit of the electronic credit ledger - unless the ITC is both availed and utilized, interest cannot be levied on the registered tax payer. The order passed by the proper officer dated 8th April 2023 which has since, merged with the order passed by the appellate authority dated 13th May 2022 cannot be sustained, the same is accordingly set aside. Consequentially, the demand raised by the respondents on account of interest and penalty is also not sustainable and the same is accordingly quashed - Petition disposed off.

Summary

Issues Involved:
1. Legality of the imposition of interest and penalty under Section 73 of the Central/West Bengal Goods and Services Tax Act, 2017.
2. Applicability of Section 50(3) regarding interest on wrongly availed and utilized Input Tax Credit (ITC).
3. Validity of proceedings initiated under Section 73 based on the issuance of Form GST DRC-01A.
4. The procedural correctness of the appellate authority's decision.

Issue-wise Detailed Analysis:

1. Legality of the Imposition of Interest and Penalty:
The writ petition challenges the order dated 8th April 2021, issued under Section 73 of the Central/West Bengal Goods and Services Tax Act, 2017, which imposed interest and penalty on the petitioner. The petitioner argued that upon receiving a notice in Form GST DRC-01A, they voluntarily debited their electronic credit ledger by filing Form GST DRC-03 to reverse the excess ITC availed due to a clerical error. Despite this, a show cause notice was issued, leading to the contested order. The court found that the proper officer acted with material irregularity in imposing interest, as the petitioner had sufficient credit in their electronic ledger and had not utilized the wrongly availed ITC.

2. Applicability of Section 50(3) Regarding Interest on ITC:
The petitioner contended that under Section 50(3), interest is not leviable unless the ITC is both availed and utilized. The court supported this interpretation, noting that the section was amended by the Finance Act of 2022 with retrospective effect from 1st July 2017, making it applicable to the case. The court referenced similar judgments from other high courts, concluding that interest cannot be levied unless ITC is both availed and utilized.

3. Validity of Proceedings Initiated Under Section 73:
The State argued that the issuance of Form GST DRC-01A constituted the initiation of proceedings under Section 73, obligating the petitioner to pay interest and penalty by debiting their electronic cash ledger. The court disagreed, clarifying that proceedings under Section 73 or 74 commence with the issuance of a show cause notice, not merely with Form GST DRC-01A. Rule 142(1A) of the Central Goods and Services Tax Rules, 2017, supports this, indicating that a notice in Form DRC-01A is a prelude to the formal proceedings.

4. Procedural Correctness of the Appellate Authority's Decision:
The appellate authority upheld the proper officer's order, stating that the officer acted according to the law. However, the court found the appellate decision to be cryptic and lacking consideration of key statutory provisions. The court noted that the petitioner was not estopped from challenging the order, as the adjudication was based on a determination of liability rather than an admission. Consequently, the court set aside both the original and appellate orders, quashing the demand for interest and penalty.

In conclusion, the court disposed of the writ petition by setting aside the orders imposing interest and penalty, emphasizing the need for adherence to statutory provisions and procedural fairness.