The Madras High Court has held that interest under Section 50(3) of the GST Act is payable where Input Tax Credit (ITC) has been wrongly availed and utilised, even if the dispute arises from a mismatch between GSTR-3B and GSTR-2A returns.
The bench of Justice Senthilkumar Ramamoorthy rejected the taxpayer’s argument that the discrepancies should not automatically be treated as wrongful availment of ITC and dismissed the writ petition challenging the assessment order.
The petitioner challenged an assessment order primarily contesting the levy of interest under Section 50 of the GST Act.
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According to the petitioner, the dispute arose due to a difference between the ITC reflected in its GSTR-3B returns and the auto-populated GSTR-2A statement. The petitioner argued that such a mismatch could not be equated with “wrongful availment and utilisation” of ITC and therefore interest under Section 50(3) was not attracted.
The petitioner relied upon the CBEC Circular dated 18 September 2020 and the proviso to Section 50(1) of the GST Act.
It was contended that interest under Section 50(1) is payable only on the portion of tax discharged through the electronic cash ledger. Since the disputed tax liability had been discharged through the electronic credit ledger, no interest could be levied. A mere mismatch between GSTR-3B and GSTR-2A should not be treated as wrongful availment of ITC. The expression “wrongful availment and utilisation” should be confined only to cases involving fraudulent claims or ineligible credits such as those falling under Section 17(5) of the GST Act.
The department defended the assessment order by relying upon Section 50(3) read with Rule 88B(3) of the GST Rules.
It argued that Parliament has specifically created a separate mechanism for levy of interest where ITC is wrongly availed and utilised. In such cases, Rule 88B(3) prescribes that interest is payable from the date of wrongful utilisation until reversal of the credit.
According to the Department, once the assessing officer concluded that the taxpayer had availed ITC beyond its entitlement, Section 50(3) automatically became applicable.
The Court undertook a detailed examination of Section 50 and distinguished between its two operative provisions.
The court observed that Section 50(1) is the general provision dealing with delayed payment of tax and prescribes interest up to 18%. Section 50(3) specifically governs situations involving wrongful availment and utilisation of ITC and prescribes a higher ceiling of 24%, indicating that it operates independently of Section 50(1).
The Court rejected the petitioner’s contention that wrongful availment must necessarily involve fraud or bad faith.
According to the Court, the GST statutes do not define the expression “wrongful availment and utilisation.” Therefore, in the absence of any statutory restriction, any availment and utilisation of ITC to which a taxpayer is not legally entitled would qualify as wrongful availment and utilisation, irrespective of whether fraud is involved.
The Court further noted that Rule 88B(3) expressly lays down the methodology for calculating interest on wrongly availed and utilised ITC.
The Rule provides that interest is payable from the date on which such wrongly availed ITC is utilised until the date of reversal or payment of tax. It also explains when ITC is deemed to have been utilised based on the balance available in the electronic credit ledger.
The Court observed that the assessing officer had specifically recorded that although the tax liability had been adjusted through available ITC, the relevant CGST credit had already been utilised for other liabilities before being used for the disputed tax dues.
Consequently, the officer rightly concluded that interest under Section 50(3) was payable and also imposed a penalty since the tax was discharged beyond thirty days after issuance of the defect intimation in Form DRC-01.
Finding no legal infirmity in the assessment order, the Madras High Court dismissed the writ petition.
The Court held that where ITC has been wrongly availed and utilised, Section 50(3), and not Section 50(1), governs the levy of interest. Since utilisation of such ITC necessarily occurs through the electronic credit ledger, the petitioner’s reliance on the proviso to Section 50(1) dealing with payments through the electronic cash ledger was misplaced.
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