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Issues: (i) whether interest under section 50 of the Central Goods and Services Tax Act, 2017 could be levied on tax discharged by utilising input tax credit; (ii) whether the proviso inserted to section 50 by section 100 of the Finance (No. 2) Act, 2019 operated retrospectively.
Issue (i): Whether interest under section 50 of the Central Goods and Services Tax Act, 2017 could be levied on tax discharged by utilising input tax credit.
Analysis: Interest under section 50 is compensatory and is attracted where tax remains unpaid beyond the prescribed time. The Court held that where tax is discharged by adjustment of available input tax credit, the State is not deprived of funds in the manner contemplated by the charging provision. Input tax credit already lying in the electronic ledger is not a delayed remittance of tax in cash, and levying interest on that component would amount to treating the credit as if it were unpaid tax. The Court also relied on the distinction between availment and utilisation of input tax credit and concluded that the provision, properly understood, applies only to delayed cash payment.
Conclusion: Interest was not leviable on the portion of tax paid by utilisation of input tax credit, and the challenge succeeded in favour of the assessee.
Issue (ii): Whether the proviso inserted to section 50 by section 100 of the Finance (No. 2) Act, 2019 operated retrospectively.
Analysis: The proviso was treated as curative and declaratory of the intended legislative position that interest should be charged only on the net cash liability. The Court noted the sequence of GST Council recommendations, the subsequent notification, the press clarification, and the Board circular, all pointing to the same understanding that the proviso corrected an anomaly and was meant to apply from the commencement of GST. In that view, the later notified prospective date did not control the substantive legislative effect of the amendment.
Conclusion: The proviso was held to be retrospective and applicable from 01.07.2017.
Final Conclusion: The impugned interest demands on ITC-based discharge of tax could not stand, the writ petitions were allowed, the attachments were lifted, and recovery was confined only to any interest lawfully attributable to delayed cash remittance.
Ratio Decidendi: Interest under section 50 of the Central Goods and Services Tax Act, 2017 is compensatory and can be levied only on delayed cash payment of tax, while a proviso inserted to remove an anomaly and confine interest to net cash liability operates retrospectively.
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