Dealer Wins Challenge Against Unwarranted Interest Liability on Transitional Credit Under CGST Section 50(3)

GST dealer challenged order regarding transitional credit and interest liability under CGST Act. HC found no interest liability under Section 50(3) since credit was not utilized and ECL error was departmental. Court set aside order imposing interest, allowing dealer's challenge and providing liberty to contest slow-moving stock credit disallowance through statutory appeal within 30 days.

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Issues involved:
The issues involved in the judgment are the challenge to an order passed under The Central Goods and Services Act, 2017 (CGST Act) regarding the availability and utilization of transitional credit, liability for interest under Section 50(3) of the CGST Act, and disallowance of credit on slow-moving stock.

Transitional Credit and Electronic Credit Ledger (ECL):
The petitioner, a dealer under the CGST Act, transitioned unutilized credit from the erstwhile Central Excise regime into GST. Despite the transition, the credit did not reflect in the Electronic Credit Ledger (ECL), which is maintained by the GST department. The petitioner, in good faith, reflected the credit in its returns for utilization. However, upon realizing the error, the credit was reversed without set off against output tax liability. The petitioner's actions were in line with prescribed procedures, and the fault lay in the maintenance of the ECL by the revenue department.

Liability for Interest under Section 50(3) of the CGST Act:
The audit wing of the GST department raised objections regarding the reversal of credit, asserting that the petitioner was liable for interest at 24%, even though the credit had not been utilized. The show cause notice invoked Section 50(3) of the CGST Act to recover interest on the unutilized credit. However, the court noted that liability for interest arises only when there is actual utilization of credit by the assessee, as clarified by the language post substitution in the Act. The amendment with retrospective effect from 2017 specifies that interest is attracted only when there is a revenue impact due to wrongly availed and utilized credit. Since the petitioner did not utilize the credit and the original error in non-maintenance of ECL was departmental, the court held that there was no liability for interest under Section 50(3).

Disallowance of Credit on Slow-Moving Stock:
The petitioner did not challenge the disallowance of credit on slow-moving stock in the writ petition and sought liberty to challenge it through statutory appeal. The court allowed the petitioner to challenge this portion of the order within 30 days from the date of the judgment without limitation, provided all other statutory conditions were met. The petitioner's challenge to this aspect was not pursued in the writ petition.

Conclusion:
The court set aside the impugned order to the extent that it levied interest under Section 50(3) of the CGST Act, ruling that there was no liability for interest as the credit was not utilized and the error in non-maintenance of ECL was attributable to the department. The judgment allowed the writ petition in favor of the petitioner on this issue, with no costs incurred. The connected Miscellaneous Petitions were closed as a consequence of the judgment.

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