2023 (10) TMI 854 - HC - GST

HC rules excess ITC wrongly entered in electronic ledger without actual utilization attracts no interest penalty under Section 50 CGST Act

Deepak Sales Corporation Versus Union of India and others

The HC ruled in favor of the petitioner regarding excess Input Tax Credit (ITC) of Rs. 12,65,20,827 wrongly entered in electronic credit ledger. The court ... Levy of interest - Utilisation of amount of Rs. 21,13,354/- from the excess Input Tax Credit (ITC) taken - imposition of equal penalty. Whether the petitioner was proved to have utilized an amount of Rs. 21,13,354/- out of the amount which was entered out of the excess ITC amount to the tune of Rs. 12,65,20,827/- in its electronic credit ledger as observed by respondent No. 4? HELD THAT:- From a purposeful reading of the provisions underlying Section 50 of the CGST Act, the legislation intent that stands reflected is that where an ITC/cenvat credit is wrongfully reflected in electronic ledger, the same itself is not sufficient to draw penal proceedings until the same or any part of such ITC is put to use so as to become recoverable and if such cenvat credit is reversed before utilization, then even the demand of interest and penalty cannot be said to be tenable. In this regard, we place reliance upon Jagatjit Industries Ltd.’s case [2010 (12) TMI 765 - PUNJAB & HARYANA HIGH COURT], wherein a Bench of this Court had held that where the cenvat credit was wrongly availed and was reversed before utilizing the same, there was no justification for demand of interest and upon Grasim Bhiwani Textile Ltd.’s case [2018 (6) TMI 43 - PUNJAB AND HARYANA HIGH COURT], wherein a Coordinate Bench of this Court was dealing with a similar question in a case under Central Excise Act, 1944. The assessee had been availing credit of service tax paid on input service. On a perusal of Annexure P-5 which is extract of electronic credit ledger during the period from August 2017 till December 2018, it is revealed that an amount of Rs. 14,05,78,663/- was entered as amount of ITC accrued through inputs as in August 2017. As on that date, an amount of Rs. 81,95,564/- was already lying as balance ITC. It is also revealed that during the month of August 2017, the petitioner had central tax liability of Rs. 1,61,71,190/- which it discharged using its ITC and thereafter a balance of Rs. 13,26,03,037/- was reflected as balance ITC during the month of August 2017. Meaning thereby that the petitioner did not utilize the excess ITC of Rs. 12,65,20,827/- during the month of August 2017. Similarly, till August 2018, the balance of ITC available in the electronic credit ledger of the petitioner was never below the sum of Rs. 12,65,20,827/- which shows that till August 2018 when the petitioner reversed the excess ITC amount, it had never utilized the same. Once it was proved that the amount of excess ITC though entered in the ledger in excess, was never utilized by the petitioner and since it was reversed prior to utilizing, therefore, in view of the ratio of law as laid down in Jagatjit Industries Ltd.’s case, Grasim Bhiwani Textile Ltd.’s case, the demand of interest as well as penalty was not at all tenable and the petitioner could not be burdened with the same. The impugned order dated 29.04.2022 is set aside and it is held that the petitioner was not liable to pay the amount of interest or penalty on the excess ITC wrongly entered by it in its electronic credit ledger for the relevant period - Appeal allowed. Issues Involved:1. Jurisdiction of the proper officer.2. Utilization of excess Input Tax Credit (ITC).3. Imposition of interest and penalty on excess ITC.Summary:Jurisdiction of the Proper Officer:The petitioner initially challenged the show cause notice on the grounds that it was issued without jurisdiction as the respondent No. 5 was not a proper officer. However, this plea was not pressed during the arguments.Utilization of Excess Input Tax Credit (ITC):The petitioner, a proprietorship trading concern, inadvertently claimed excess ITC of Rs. 12,65,20,827/- in August 2017 instead of Rs. 1,40,57,836/-. The petitioner reversed the excess ITC in July 2018. The respondents contended that the petitioner had utilized the excess ITC and thus was liable for interest and penalty. However, the court found that the petitioner had sufficient ITC balance and did not utilize the excess ITC. The excess ITC was reversed before utilization, negating the claim of wrongful utilization.Imposition of Interest and Penalty:The respondent No. 3 confirmed the demand for interest but dropped the proposal for penalty. The respondent No. 4, on appeal, imposed interest and penalty on the petitioner. The petitioner argued that no interest or penalty was payable as the excess ITC was not utilized. The court referred to Section 50 of the CGST Act and relevant case laws, concluding that mere wrongful reflection of ITC in the electronic ledger does not warrant penal proceedings if the ITC is reversed before utilization. The court held that the demand for interest and penalty was untenable as the excess ITC was not utilized and was reversed prior to utilization.Conclusion:The court allowed the appeal, setting aside the impugned order dated 29.04.2022, and held that the petitioner was not liable to pay interest or penalty on the excess ITC wrongly entered in its electronic credit ledger.