Interest U/s 50 Not Payable on ITC Merely Availed but Not Utilised: Orissa High Court

The Orissa High Court has held that interest under Section 50 of the CGST Act cannot be levied where input tax credit (ITC) is merely availed but not utilised, and has accordingly quashed the demand, interest, and penalty proceedings initiated under Section 74. The bench of Chief Justice Harish Tandon and Justice Murahari Sri Raman has observed that in light of the amended provisions of Section 50, interest liability would arise only when ITC is wrongly availed and utilised. Since the ITC had already been reversed and sufficient balance existed in the electronic credit ledger, no interest liability could be fastened on the petitioners. The case arose from writ petitions filed by M/s. Manoja Kumar Nayak and another taxpayer challenging orders passed by GST authorities for the financial year 2017–18. The department alleged that the petitioners had availed ITC amounting to ₹4.39 lakh on the basis of invoices issued by a non-existent supplier, and accordingly initiated proceedings under Section 74, demanding tax, interest, and penalty. The petitioners contended that the entire ITC in question had already been voluntarily reversed prior to issuance of the Show Cause Notice (SCN) through GSTR-3B returns. They further submitted that their electronic credit ledger reflected sufficient balance, demonstrating that the ITC was never actually utilised. Relying on the retrospective amendment to Section 50 effective from 1 July 2017, it was argued that interest is chargeable only when ITC is both wrongly availed and utilised, and not when it is merely availed. Additionally, the petitioners challenged the very invocation of Section 74, arguing that there was no material evidence of fraud, wilful misstatement, or suppression of facts, which are essential preconditions for initiating proceedings under that provision. They also pointed out procedural lapses, including the non-issuance of pre-show cause notice in Form DRC-01A, thereby violating principles of natural justice. On the other hand, the GST department argued that the writ petitions were not maintainable due to the availability of an alternate statutory remedy. It was further contended that whether the ITC reversed corresponded to the alleged bogus transactions was a matter requiring factual verification by the adjudicating authority. The High Court, however, noted that it was an undisputed fact that the petitioners had reversed the ITC prior to issuance of the SCN and had also intimated the department accordingly. The Court further observed that the authorities had failed to file any counter-affidavit and had proceeded in a mechanical and over-zealous manner, ignoring material evidence available on record. The Court also ruled that invocation of Section 74 was unsustainable in the absence of any evidence indicating fraud or suppression. It emphasised that proceedings cannot be initiated merely on the basis of DGGI alerts without independent application of mind by the adjudicating authority. The Court set aside the impugned orders and demand notices, holding that the levy of interest and penalty was unjustified. The ruling underscores that voluntary reversal of ITC prior to SCN neutralises the tax liability and protects taxpayers from penal consequences, provided there is no element of fraud. Case Details Case Title: M/s. Manoja Kumar Nayak Versus Commissioner Citation: JURISHOUR-705-HC-2026(ORI) Case No.: W.P.(C) No.12682 of 2025 Date: 08.04.2026 Counsel For Petitioner: Rudra Prasad Kar Counsel For Respondent: Sujan Kumar Roy Choudhury, Senior Standing Counsel Click Here To Read Order Read More: Amounts Appropriated During Pendency Of Appeal—Despite Existence Of Stay Order—Must Be Treated As Payments Made ‘Under Protest’, Refund Not Subjected To Limitation: Madras HC

Interest U/s 50 Not Payable on ITC Merely Availed but Not Utilised: Orissa High Court

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