Interest on undue input tax credit affirmed; interest payable despite initial non utilisation and cash ledger adjusted to recover arrear.

Where transitional input tax credit was wrongfully availed and remained in the electronic credit ledger until reversal, the HC applied the principle that interest is payable on undue or excess input tax credit claimed under the GST code and rejected the contention that mere initial reflection or non utilisation negates interest liability; outcome: interest payable. The court further held that statutory provisions permitting recovery as an arrear allow adjustment of amounts in the electronic cash ledger against confirmed interest liabilities; outcome: adjustment of the cash ledger refund towards the interest arrear was lawful and the writ petition was dismissed.

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Issues: (i) Whether interest under Section 50(3) read with Section 42(10) of the Central Goods and Services Tax Act, 2017 is payable where transitional input tax credit was wrongfully availed and subsequently reversed, and whether mere availment without utilisation excludes interest liability; (ii) Whether amount in the electronic cash ledger can be adjusted under Section 79 of the Central Goods and Services Tax Act, 2017 towards interest arising from such wrongful availment.

Issue (i): Whether interest under Section 50(3) read with Section 42(10) of the Central Goods and Services Tax Act, 2017 is payable where transitional input tax credit was wrongfully availed and later reversed, and whether non-utilisation precludes levy of interest.

Analysis: The finding recorded is that the disputed transitional credit was claimed in GSTR-3B and remained in the electronic credit ledger from 28.08.2017 until reversal on 20.05.2019. The statutory text of Section 50(3) makes interest payable on undue or excess claim of input tax credit. Where the tax liability arises from self-assessment and remains unpaid, Section 79 and related provisions permit recovery as an arrear. The court accepted the factual conclusion that the credit was wrongfully availed and that during the relevant period the electronic credit ledger balance did not establish that the credit was never effectively utilised to the exclusion of the revenue consequence asserted by respondents.

Conclusion: Interest under Section 50(3) read with Section 42(10) of the Central Goods and Services Tax Act, 2017 is payable on the excess claim of input tax credit in the facts found, and mere initial reflection without the ability to show non-utilisation did not negate the interest liability; the claim that non-utilisation alone precludes interest is rejected.

Issue (ii): Whether the claimed refund in the electronic cash ledger could be lawfully adjusted under Section 79 of the Central Goods and Services Tax Act, 2017 towards the interest liability adjudged on the wrongful availment.

Analysis: Section 49(3) and (4) distinguish permitted uses of balances in the electronic cash ledger and electronic credit ledger, and Section 79 permits recovery of unpaid amounts by deduction from monies owing to the taxable person. The appellate order applied these provisions to hold that interest and related liabilities are payable from the electronic cash ledger and that adjustment of the refund was permissible as recovery of an arrear.

Conclusion: The adjustment of the electronic cash ledger refund against the confirmed interest arrear under Section 79 was lawful and sustainable.

Final Conclusion: The judgment upholds the recovery of interest on the excess transitional input tax credit and the adjustment of the electronic cash ledger refund against that interest; the writ petition is dismissed.

Ratio Decidendi: Where a taxable person has made an undue or excess claim of input tax credit and accepted or self-assessed reversal, interest under Section 50(3) of the Central Goods and Services Tax Act, 2017 is payable on that excess claim, and amounts in the electronic cash ledger may be adjusted under Section 79 of the Central Goods and Services Tax Act, 2017 for recovery of such interest as an arrear.

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