Interest on excess / wrong ITC

[Kaustubh Karandikar]

If ITC is wrongly claimed excess or claimed though not eligible. 1) Under which Section it is mentioned that Interest is not required to be paid if sufficient balance is maintained to cover the excess credit 2) This provision is valid from which date?

[Rajagopalan Ranganathan]

Sir,

Section 50 of CGST Act, 2017 prescribes interest on delayed payment of tax. Sub-section 3 of Section 50 of CGST Act, 2017 stipulates that "a taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council." This section does not provide for not charging interest if sufficient balance is maintained to cover the undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43,

[CSSANJAY MALHOTRA]

Section 50(3) of CGST Act 2017 is applicable if Section 42(10) of CGST Act 2017 is in force which is not at present as GSTR-2 has not been notified and hence matching concept does not exist. Taxpayer can contest the levy of Interest on excess / incorrect availment of ITC u/s 50(3) of CGST Act 2017.

[KASTURI SETHI]

Sh.Sanjay Malhotra Ji,

Sir, It gives me immense pleasure to see you back in this forum. I agree with your views.

[Rajagopalan Ranganathan]

Sir,

It is held by Patna High Court in M/s. Commercial Steel Engineering Corporation vs. State of Bihar [2019 (7) TMI 1452 - PATNA HIGH COURT] that the interest under Section 73 of CGST Act, 2017 read with Section 50 of CGST Act, 2017 is recoverable only when some positive act of utilization of ITC is shown by the Department and mere reflection of credit in electronic credit ledger is not sufficient for invoking interest liability. Therefore you cant contest the demand of interest by bringing to the notice of the Department the above judgment.

[KASTURI SETHI]

Sh.Ranganathan Sir,

Thanks a lot for posting this case law. It is very very useful.

[Ganeshan Kalyani]

I am also glad that Sri Sanjay Sir has made a come back. We were missing your guidance.

[Ganeshan Kalyani]

In my view, interest is payable however as suggested by experts it can be contested.

AI Summary

Interest on undue input tax credit: statutory charge under Section 50(3) but disputable where only ledger entries exist. Interest is chargeable under Section 50(3) of the CGST Act for undue or excess input tax credit claims or undue reductions in output tax liability; the statute does not exempt interest where ledger balances remain sufficient. Section 42(10)'s matching mechanism that would operationalise such claims is not yet in force pending return-matching notifications. Judicial authority indicates interest may require proof of actual utilization of credit rather than mere electronic ledger reflection, and taxpayers can therefore dispute interest demands on factual and legal grounds.