2022 (3) TMI 442 - HC - GST

Penalty under Section 122(2)(a) CGST Act quashed as taxpayer never wrongly availed Input Tax Credit

The Madras HC partly allowed a writ petition challenging CENVAT Credit reversal and penalty imposition. The petitioner abandoned the credit reversal ... Disallowance and appropriation of transitional credit under Section 73(1) - demand of interest for appropriated tax under Section 50(3) of the CGST Act - penalty under Section 122(2)(a) for wrongly availed or utilised Input Tax Credit - electronic credit ledger availability as equivalent to revenue possession/no prejudice to revenueDemand of interest for appropriated tax under Section 50(3) of the CGST Act - electronic credit ledger availability as equivalent to revenue possession/no prejudice to revenue - Whether interest could be levied on the tax demand which was appropriated from the assessee's electronic input tax credit ledger - HELD THAT: - The Court found that the entire transitional credit remained in the assessee's electronic credit ledger throughout and the revenue appropriated the demand from that credit. Applying precedents cited in Maansarovar Motors Pvt. Ltd. and other decisions, the Court held that where the amount was available in the department's possession by way of credit in the electronic ledger and could have been adjusted at any time, imposition of interest to compensate alleged loss of capital is not justified. The reasoning rested on the view that no prejudice was caused to the revenue when the department held the credit balance and thereafter adjusted it; consequently interest under the statutory provision invoked could not be demanded in the facts of this case. [Paras 25, 26, 27, 30]Demand of interest under Section 50(3) as made in the impugned order is unjustifiable and set aside.Penalty under Section 122(2)(a) for wrongly availed or utilised Input Tax Credit - Whether penalty under Section 122(2)(a) could be imposed where the Input Tax Credit was not availed or utilised by the assessee - HELD THAT: - The Court examined the statutory language of Section 122(2)(a) which contemplates penalty where input tax credit has been wrongly availed or utilised. On the material before it, the Court recorded that the transitional credit was never availed or utilised by the assessee for discharging output tax liability but remained as a balance in the electronic credit ledger until appropriation. Because utilisation/availing is a pre-requisite for imposing the penalty under the provision relied upon, and that factual predicate was absent, the imposition of penalty could not be sustained. [Paras 28, 29, 30]Penalty imposed under Section 122(2)(a) is not sustainable and is set aside.Final Conclusion: Writ petition partly allowed: disallowance and appropriation of the transitional credit as recorded in the impugned order are upheld, but the clauses imposing interest and penalty are quashed; no order as to costs. Issues Involved:1. Disallowance of CENVAT credit carried forward through GST TRAN-1.2. Demand of interest on the disallowed CENVAT credit.3. Imposition of penalty for wrong availment of Input Tax Credit (ITC).Detailed Analysis:1. Disallowance of CENVAT Credit:The petitioner, registered under the GST regime, claimed unavailed CENVAT credit of Rs. 50,21,080/- from the previous tax regime through TRAN-1. The respondent objected, stating that the ER-1 returns for April, May, and June 2017 were not filed, thus the petitioner was asked to reverse the CENVAT credit. Despite attempts to file the returns online, technical glitches prevented successful submission. Consequently, the petitioner reversed the credit in May 2019. The respondent disallowed the credit and demanded it back under Section 73(1) of the CGST Act, appropriating the credit reversed on 20.06.2019. The petitioner did not challenge this disallowance.2. Demand of Interest:The respondent demanded interest under Section 50(3) of the CGST Act for taking ineligible transitional credit. The petitioner contended that since the entire tax demand was appropriated from the credit available in the electronic ledger, no interest should be due. The court referred to previous judgments, including M/s. Maansarovar Motors Pvt. Ltd. vs. the Assistant Commissioner, which held that no interest is due if the credit was available and not utilized. The court concluded that since the amount was always available in the petitioner's credit, interest demand was unjustified.3. Imposition of Penalty:The respondent imposed a penalty of Rs. 5,02,108/- under Section 122(2)(a) of the CGST Act for wrong availment of ITC. The petitioner argued that the ITC was never utilized or availed wrongly, as it remained in the electronic ledger and was appropriated by the respondent. The court agreed, stating that the penalty under Section 122(2)(a) requires the ITC to be wrongly availed or utilized, which was not the case here. Thus, the imposition of the penalty was deemed unjustifiable.Conclusion:The court upheld the disallowance and appropriation of the CENVAT credit but set aside the demands for interest and the imposition of the penalty. The writ petition was partly allowed, with the court declaring the interest and penalty demands as unjustifiable and unlawful. No costs were ordered, and the connected miscellaneous petition was closed.