INTEREST ON WRONGLY AVAILED AND UTILISED INPUT TAX CREDIT

Levy of GST

Every registered person under Central Goods and Services Tax Act, 2017 (‘Act’ for short) is liable to levy tax on goods or services or both and to remit to the credit of the Government within the stipulated time and also to file the required return within the prescribed time.

Input tax credit

Input Tax Credit (‘ITC’ for short) is a mechanism that allows businesses to reduce their tax liability by claiming credit for the Goods and Services Tax (‘GST’ for short) already paid on their business-related purchases. It prevents the 'cascading effect' (tax on tax) so that companies only pay tax on the value they add. When a business sells a product or service, it collects GST from the customer (known as Output Tax). When that same business purchases raw materials or services to run its operations, it pays GST to its suppliers (known as Input Tax). Under the ITC system, the registered person can deduct the tax he paid on his inputs from the tax he collected on his sales, paying only the difference to the government. The registered person may use the balance in the input tax credit ledger for making the payment of tax, interest, or fine.

Interest

When the tax is not paid the registered person is liable to pay interest for the belated payment. Section 50 provides for the levy of interest in case of belated payment of tax or wrongly availed and utilised ITC.

Section 50(1) of the Act provides that every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding 18% as may be notified by the Government on the recommendations of the Council. The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.

Section 50(3) of the Act provides that where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding 24% as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed.

Interest is not liable to be paid for mere wrongful availment of ITC. Interest is liable to be paid if the ITC is wrongly and availed and utilised. The expression ‘wrongly availed and utilised’ has not been defined in the Act.

Interest is payable only if the wrongly availed ITC is actually used to discharge the GST liability. If the credit remains in the electronic credit ledger and is reversed before the utilisation of the credit, then no interest is payable.

Calculation of interest

Rule 88 of Central Goods and Services Tax Rules, 2017 provides for the calculation of interest on the belated payment of tax by adjusting input tax credit. Rule 88B (3) provides that where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with  section 50 (3), the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said Section 50(3).

The date of utilisation of such input tax credit shall be taken to be, -

(a) the date, on which the return is due to be furnished under section 39 or the actual date of filing of the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or

(b) the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other cases.

Case law

In Jayashree Enterprises, Rep. by its Proprietor Kumaravel Kanagaraju Versus Assistant Commissioner (ST), Udumalpet - 2026 (6) TMI 1208 - MADRAS HIGH COURT, there was a discrepancy between the input tax credit reflected in GSTR – 3B return in comparison to the GSTR – 2A auto-populated return. The Assistant Commissioner, Udumalpet passed an order on 10.02.2025 in which he imposed the levy of interest under Rule 88B (3) as the input tax credit was wrongly availed and credited.

In the impugned order the Assessing Officer observed that the tax due is set off against the available ITC in the credit ledger. However, the CGST credit had already been utilised by the taxpayer against the other tax dues before the actual date on which the credit has been utilised to set off the above said tax due. Hence the CGST portion of the tax due attracts

interest in accordance with section 50 of TNGST Act, 2017. Also tax due has been paid only beyond 30 days from the date of intimation of the defect in DRC 01. Hence penalty is also levied for SGST and CGST.

The Registered person filed a writ petition against the order of the Assistant Commissioner before the High Court. The petitioner contended the following before the High Court-

• any liability imposed on account of such discrepancy cannot be characterised as wrongful availment and utilisation of ITC.
• the petitioner is entitled to the benefit of circular bearing F.No.CBEC-20/01/08/2019-GST, dated 18.09.2020.
• The interest is payable only on the portion of the tax paid by debiting the electronic cash ledger and not by debiting the electronic credit ledger.
• the tax liability was discharged by debiting the electronic credit ledger of the petitioner.
• The liability arising out of the discrepancy in ITC available as per the GSTR – 3B return and GSTR – 2A should not be construed as wrongful availment and utilisation of ITC.
• the expression “wrongful availment and utilisation” should be confined to cases such as availment of ITC without genuine supply of inputs or cases relating to impermissible ITC under Section 17(5) of applicable GST statutes.

The Department contended that the Parliament has specifically provided for cases where ITC was wrongly availed and utilised. In such cases, the Department submitted that sub-rule (3) of Rule 88B provides for interest to be levied from the date of wrongful utilisation till the date of reversal.

The High Court considered the submissions of both the parties. The High Court analysed the provisions of Section 50(3) of the Act and Rule 88B. The High Court observed that a conclusion has been reached by the assessing officer that the petitioner had availed of ITC to which the petitioner is not entitled. In the absence of any statutory definition curtailing the scope of the expression “wrongful availment and utilisation of ITC” to fraudulent or bad faith availment or utilisation, any availment and utilisation thereof while not eligible or entitled

thereto would qualify as wrongful availment and utilisation. This conclusion is fortified by the fact that bad faith availment and utilisation is dealt with separately under Section 74inter alia by prescribing a higher penalty. Therefore, the specific provision in sub-section (3) of Section 50 is attracted.

The High Court held that the findings of the Assessing Officer is in order and the High Court found no infirmity to interfere with the order under Article 226 of the Constitution. The High Court dismissed the writ petition.