ITC wrongly availed but not utilized does not attract interest and penalty under Section 50(3)

HC held that interest and penalty cannot be levied on wrongly availed ITC unless it is both availed and utilized. Petitioner had wrongly claimed ITC due to error in GSTR-09 filing but never utilized it, maintaining sufficient credit balance. Court noted Section 50(3) amendment with retrospective effect from July 2017 supports this position. Following precedent, HC concluded that mere availment without utilization does not attract interest liability. Payment from electronic credit ledger instead of cash ledger was also noted. Orders demanding interest and penalty were set aside and quashed.

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Issues Involved:
1. Legality of the imposition of interest and penalty under Section 73 of the Central/West Bengal Goods and Services Tax Act, 2017.
2. Applicability of Section 50(3) regarding interest on wrongly availed and utilized Input Tax Credit (ITC).
3. Validity of proceedings initiated under Section 73 based on the issuance of Form GST DRC-01A.
4. The procedural correctness of the appellate authority's decision.

Issue-wise Detailed Analysis:

1. Legality of the Imposition of Interest and Penalty:
The writ petition challenges the order dated 8th April 2021, issued under Section 73 of the Central/West Bengal Goods and Services Tax Act, 2017, which imposed interest and penalty on the petitioner. The petitioner argued that upon receiving a notice in Form GST DRC-01A, they voluntarily debited their electronic credit ledger by filing Form GST DRC-03 to reverse the excess ITC availed due to a clerical error. Despite this, a show cause notice was issued, leading to the contested order. The court found that the proper officer acted with material irregularity in imposing interest, as the petitioner had sufficient credit in their electronic ledger and had not utilized the wrongly availed ITC.

2. Applicability of Section 50(3) Regarding Interest on ITC:
The petitioner contended that under Section 50(3), interest is not leviable unless the ITC is both availed and utilized. The court supported this interpretation, noting that the section was amended by the Finance Act of 2022 with retrospective effect from 1st July 2017, making it applicable to the case. The court referenced similar judgments from other high courts, concluding that interest cannot be levied unless ITC is both availed and utilized.

3. Validity of Proceedings Initiated Under Section 73:
The State argued that the issuance of Form GST DRC-01A constituted the initiation of proceedings under Section 73, obligating the petitioner to pay interest and penalty by debiting their electronic cash ledger. The court disagreed, clarifying that proceedings under Section 73 or 74 commence with the issuance of a show cause notice, not merely with Form GST DRC-01A. Rule 142(1A) of the Central Goods and Services Tax Rules, 2017, supports this, indicating that a notice in Form DRC-01A is a prelude to the formal proceedings.

4. Procedural Correctness of the Appellate Authority's Decision:
The appellate authority upheld the proper officer's order, stating that the officer acted according to the law. However, the court found the appellate decision to be cryptic and lacking consideration of key statutory provisions. The court noted that the petitioner was not estopped from challenging the order, as the adjudication was based on a determination of liability rather than an admission. Consequently, the court set aside both the original and appellate orders, quashing the demand for interest and penalty.

In conclusion, the court disposed of the writ petition by setting aside the orders imposing interest and penalty, emphasizing the need for adherence to statutory provisions and procedural fairness.

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