The Goods and Services Tax Appellate Tribunal (GSTAT), Lucknow, has upheld an interest demand of ₹2,48,600.64, holding that subsequent reversal of excess input tax credit (ITC) does not extinguish interest liability where the credit had already been utilised to discharge tax liabilities.
The Bench comprising Narendra Kumar (Judicial Member) and Alok Chopra (Technical Member) found that the taxpayer’s Electronic Credit Ledger had reached zero on multiple occasions before reversal. This established that the disputed credit had been consumed, defeating the taxpayer’s claim that sufficient credit remained available throughout the relevant period.
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The Tribunal also held that interest under Section 50 of the Uttar Pradesh Goods and Services Tax Act, 2017 is compensatory and that an intention to evade tax is irrelevant to its levy.
The dispute arose from scrutiny of returns filed by R.S. Traders, a proprietorship, concerns trading in scrap materials, for the financial year 2021-22.
The proceedings concerned excess ITC availed in GSTR-3B. The accompanying order summary describes the issue as a difference between GSTR-3B and GSTR-2A, with the disputed amount subsequently deposited but interest remaining unpaid.
The taxpayer reversed or deposited ₹3,51,049.36 through Form GST DRC-03 dated October 27, 2025. This comprised CGST of ₹70,155, SGST of ₹70,155 and IGST of ₹2,10,739.36.
However, the proper officer confirmed interest liability through an order in Form GST DRC-07 dated December 29, 2025, holding that the excess credit had been utilised before reversal.
The first appellate authority upheld the interest demand after examining the Electronic Credit Ledger. Aggrieved by that decision, the taxpayer approached GSTAT.
The taxpayer contended that it voluntarily reversed the entire disputed credit immediately upon receiving the notice, leaving no principal tax liability outstanding.
It further submitted that sufficient balance was available in its Electronic Credit Ledger during the relevant period and that the reversal itself was made through that ledger. Accordingly, it disputed the applicability of interest under Section 50(3).
The taxpayer also argued that the department had not established any deliberate intention to evade tax or wrongfully avail credit.
Regarding the underlying purchases, it maintained that the transactions were genuine and supported by valid invoices from registered suppliers. It claimed that the suppliers had declared the corresponding sales and paid the applicable tax, and that statutory certificates supported transactions where invoices were absent from GSTR-2A.
The taxpayer relied on Raj Iron & Building Materials v. Union of India and Intayaz Ahmed v. State of U.P. The department submitted that interest under Section 50(3) is statutory, mandatory and compensatory where ITC has been wrongly availed and utilised.
It pointed out that the taxpayer’s credit ledger had reached zero on multiple occasions between the availment of the disputed credit in FY 2021-22 and its reversal on October 27, 2025.
According to the department, those entries demonstrated that the credit had actually been used to discharge output tax liabilities. Subsequent repayment of the principal amount therefore did not eliminate the interest liability.
The Tribunal examined Section 50(3), as retrospectively amended, and noted that interest applies where ITC has been wrongly availed and utilised.
On the facts, the Bench rejected the taxpayer’s claim that sufficient credit remained available in the ledger.
It found that the inspection conducted by the first appellate authority conclusively established that the ledger balance had fallen to zero repeatedly before reversal. Consequently, the excess credit of ₹3,51,049.36 had been consumed to offset tax liabilities.
The finding of actual utilisation was central to the ruling. The Tribunal sustained interest because the disputed credit had been both wrongly availed and used before its reversal.
The Bench held that interest under Section 50 compensates the Revenue for financial loss arising from delayed tax payment or incorrect or excess utilisation of credit.
It therefore rejected the taxpayer’s reliance on the absence of deliberate tax evasion, holding that mens rea was irrelevant to the levy of interest under the provision.
The Tribunal also found the precedents cited by the taxpayer inapplicable to the present case.
The Tribunal recorded that hearing opportunities were provided on September 30, October 8, October 22 and October 28, 2026. Despite communication of the notices, neither the taxpayer nor its authorised representative appeared on those dates.
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