No Interest & Penalty on ITC availed but not utilised

1. NOINTEREST&PENALTYONITCAVAILED BUTNOTUTILISED https://taxguru.in/goods-and-service-tax/interest-penalty-itc-availed-utilised.html Hon’ble Madras High Court (‘HC’) in the case of M/s Aathi Hotel‘the applicant’ has ruled that their would not beanyinterestliabilityontransitionalcreditclaimedthroughTRAN-01whichwasnotutilizedandstill availableinelectronic creditledger oftaxpayer. Captionedruling hasbeen analyzedin thisupdate. FACTSOFTHECASE(relevantextracts) TheapplicanthadfileditsGSTTRAN-01andclaimedSGSTcreditofRs.3,86,271/-howeverthe unavailed credit as per VAT returns was only Rs.2,29,850/- and thus excess claim of Rs.1,56,421/- was made. Forbalancecredit,applicantsubmittedinvoicesandaftertheirverification,thatITCclaimedwas inadmissiblebothunderTNVATActandGSTAct. Accordingly,departmentpassedassessmentorderU/s74ofGSTActraisingdemandoftaxof Rs.3,86,271/-,penalty @100% ofRs.3,86,271/- andinterest @24% of Rs.2,32,651/-. TheapplicantchallengedtheaforesaidorderbeforeHon’bleHighCourtunderwritjurisdiction. CONTENTIONOFTHEAPPLICANT That theITCwasnever utilized,andentiretransitional creditwasreversedthrough monthlyGSTreturnof January2020 and thusquestion of interest andpenalty does notarise. ThatSection74ofGSTActwouldonlyapplytothosecases,wherethereiswrongutilizationofcredit availed. Thatinterestu/s50(3)willapplyonlyifapersonmakesundueorexcessclaimofITCU/s42(10)orundue orexcess reduction in outwardtax liability u/s 43(10). CONTENTIONOFTHEDEPARTMENT That the petitioner was neither entitled to ITC under erstwhile TNVAT Act nor entitled to transition of credit under GST regime and therefore is liable to pay interest and penalty for availing transitional credit wrongly. Thattheattemptofthepetitionertoavailcreditandtransitionthesameshowsthatthepetitioner’s intentionwasnotbonafidebutwastowronglyutilizetheITC. Thattheinterestandpenaltyareconsequentialintermsofsection74ofGSTAct. OBSERVATIONANDDECISIONBYHC Itisevidentthatthepetitionerhadwronglyattemptedtotransitionacreditwiththehopetousethesame againstfuture taxliability. Thus theintention of thepetitioner is notbonafide. ThatthetaxpayerhasnotutilisedtheaforesaidITCandhasreversedthesameonreceiptofSCNfrom department.

2. ThoughtheproceedingsU/s73(1)or74(1)canbeinitiatedformerewrongavailmentofITChoweverthe interestandpenalty standattracted onlywheresuch credithas beenavailedand utilisedaswell. SincethetaxpayerhaswronglyavailedITCwhichhecouldhaveusedandthusisliablefortokenpenalty ofRs.10,000/- F.Ourcomments CaptioneddecisionofHon’bleMadrasHighCourthasagainupheldthatinterestandpenaltieswouldbe attracted only in the event if the ITC availed is utilized and not otherwise. The Judgement of Hon’ble Patna High Courtin thecase of M/sCommercial SteelEngineering Corporation hasbeen followed. Finance Act, 2021has proposed to amend section 50(3) of GST Act retrospectively from 1st July 2017 as follows: Where the input tax credit has been wrongly availed and utilized, the registered person shall pay interest on such input tax credit wrongly availed and utilized, at such rate not exceeding twenty-four per cent. as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner asmay be prescribed. Though this amendment is yet to be notified however the intent of the legislature was clear which was correctly interpretedby Hon’ble High Courtsin the aforesaid judgements. (Authorcanbereachedatdinesh.singhal@snr.companyorcadineshsinghal@gmail.com). DISCLAIMER:The views expressed are strictly of the author. The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation. Author do not accept any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newslettershould be usedfor any purpose(s) unlessauthorized in writing.