2023 (10) TMI 578 - HC - GST

GST transitional credit penalty quashed due to technical glitches preventing proper transition under Section 140

M/s. PMA Controls India Limited Represented by its Director R. Ramesh Versus The Joint Commissioner of Central Tax (Appeals-II), Office of the Commissioner of GST & Central Excise (Appeals-II), Chennai, The Assistant Commissioner, Office of the Assistant Commissioner of GST & Central Excise, Chennai, The Assistant Commissioner-Audit II Commissionerate, Chennai

The Madras HC allowed a petition challenging the imposition of interest and penalty on transitional credit under GST. The petitioner was entitled to ... Seeking to levy interest on transitional credit which was allowed - revenue neutrality - HELD THAT:- In this case, the issue is revenue neutral. The petitioner was entitled to transition/transmit the Input Tax Credit lying unutilized in his CENVAT account as on 30.06.2017 i.e., one day before the implementation of GST under Section 140 of the CGST Act, 2017. Thus, the Input Tax Credit that was lying unutilized was to be transitioned under the new regime in terms of Sections 139 and 140 of the CGST Act, 2017. However, on account of technical glitches, credit could not be transitioned under Section 140 of the CGST Act, 2017. Since the issue is being revenue neutral, the imposition of penalty/interest either under Section 73(9) or Section 50(3) of the CGST Act, 2017, cannot be countenanced. If the petitioner had been allowed to successfully transition the credit under Sections 138 to 140 of the CGST Act, 2017, then and there, the amount would have available for being utilization. By availing the amount as regular credit and utilizing the same, the petitioner has not caused any loss to the revenue. There are no reasons to sustain the impugned order insofar as it seeks to impose interest at 10% and penalty on the petitioner as the issue is revenue neutral - petition allowed. Issues Involved:1. Demand and imposition of interest and penalty on wrongly availed Input Tax Credit (ITC).2. Legitimacy of transitional credit and technical glitches.3. Justification of revenue-neutrality in imposing penalty and interest.Summary:1. Demand and Imposition of Interest and Penalty on Wrongly Availed ITC:The petitioner challenged the impugned Order-in-Appeal No.267/2022-JC (GSTA-II) dated 04.08.2022, which partly allowed the petitioner's appeal against Order-in-Original No.05/2022 dated 28.02.2022. The second respondent had demanded ITC of Rs. 35,525/- and imposed a penalty under Section 122(2)(a) read with Section 74(1) of the CGST Act, 2017. However, the first respondent revised the penalty to 10% of the tax amount, i.e., Rs. 1,24,761/-. The court found that the denial of ITC due to default by the supplier was not sustainable as there was no finding of the petitioner's malafide intention or wrongful association with the suppliers. Thus, the demand and penalty of Rs. 35,525/- were dropped.2. Legitimacy of Transitional Credit and Technical Glitches:The petitioner, a Central Excise Assessee, had an unutilized ITC of Rs. 12,47,610/- as on 30.06.2017, which was sought to be transitioned under Section 140 of the CGST Act, 2017. Due to technical glitches, the petitioner could not transition the credit initially but succeeded on 17.08.2021. The petitioner had wrongly availed ITC for the same amount in its Electronic Credit Ledger and utilized it for discharging tax liability. The petitioner reversed the credit after an audit and issuance of a Show Cause Notice. The court observed that the issue was revenue-neutral and the petitioner was entitled to transition the credit.3. Justification of Revenue-Neutrality in Imposing Penalty and Interest:The court held that since the issue was revenue-neutral, the imposition of penalty and interest either under Section 73(9) or Section 50(3) of the CGST Act, 2017, could not be sustained. It was noted that the petitioner had not caused any loss to the revenue by availing and utilizing the credit. The court cited a similar case under the TNGST Act, 2017, where it was held that sustaining penalty and interest would be hyper-technical. Consequently, the impugned order imposing interest and penalty was set aside, and the writ petition was allowed to that extent.