penalty inspite of reversal of ITC

[SUSHIL BANSAL]

Dear experts,

one of my client claimed excess ITC in the month of January 2018 (due to feeding error). some amount of it was utilised also in subsequent months . In the month of Oct., 2018 3B the excess claimed ITC was reversed and tax paid. 90% of this paid tax was lying in cash ledger. the fact of reversal was also mentioned in GSTR-9 table No 12.

SCN issued. we replied as above. Interest u/s 50 was paid after DRC-07.in DRC-07 department imposed penalty u/s 122(2)(a) @ 10% of wrong ITC availed.

My query is :

when ITC has been revered voluntarily & informed through 3B & GSTR-9.is it justified to impose penalty because section 73(8) waives penalty but I think 73(8) covers cases of payment through DRC-03.

if my case is covered by section 73(8), then whether it makes any difference if only tax is paid, as Interest was paid after DRC-07

[Amit Agrawal]

Whether there was demand of taxes (i.e. ITC wrong availed), interest & penalty u/s 73 proposed in the SCN? Was there a proposal to impose penalty u/s 122(2)(a) in the SCN?

[KASTURI SETHI]

Dear Querist,

Your client is not eligible for the benefit under Section 73 (8) of CGST Act because interest is a part of tax. Tax and interest both must have been paid within 30 days of the issuance of the SCN. Tax has been paid voluntarily but interest has not been paid voluntarily. Interest was paid on being pointed out by the department.

Tried my best to search case laws in favour of the assessee but majority of the case laws are in favour of the department on this issue. A few are as under :-

(i) Interest is a part of tax-.-------Orissa High Court in the case of P.K. Ores Pvt. Ltd reported as - 2022 (5) TMI 1293 - ORISSA HIGH COURT

(ii) Interest is not only self-imposed but also automatic.---------Orissa High Court in the case of ORISSA STEVEDORES LTD. - 2022 (7) TMI 705 - ORISSA HIGH COURT

(iii) Interest on delayed payment of tax - Portion of tax liable to be set-off against Input Tax Credit (ITC) - Mere availability of credit without being brought in form of credit entry into electronic credit ledger not to tantamount to payment - Assessee filing returns belatedly, and consequently, payment of tax liability, partly in cash and partly in form of claim for ITC made beyond period prescribed - Liability to pay interest arose automatically - Claim made by Department for interest on ITC portion of tax not to be found fault with - Sections 41, 49 and 50 of Central Goods and Services Tax Act.-------Telangana High Court in the case of MEGHA ENGINEERING & INFRASTRUCTURES LTD.  - 2019 (4) TMI 1319 - TELANGANA AND ANDHRA PRADESH HIGH COURT

[KASTURI SETHI]

Every querist posts the query with hope to get relief de jure but legally correct situation has to be expressed.

Section 122 (2)(a) of CGST Act

(2) Any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised, —

(a) for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees or ten per cent. of the tax due from such person, whichever is higher;

The word, 'shall' means penalty is mandatory. The Adjudicating Authority is legally bound to impose penalty for the above offence.

Had the tax payer deposited the whole amount of tax along with due interest within stipulated period, he would have availed the benefit of closure of the proceedings under Section 73 (8) of CGST Act.. In case the party could not take the benefit, the department is not at fault. The department is legally correct in all aspects.

Disclaimer Certificate : These are my personal views for the purpose of education and widening the horizon of knowledge on the issue and not for court proceedings.

[SUSHIL BANSAL]

Thanks to experts for the quick opinion.Thanks to Kastur sethi Sir.

my case is of FY 17-18. ITC wrongly claimed was in Jan 18 of Rs. 40 Lacs .Interest on utilsation of this wrong ITC availed is merely Rs. 15000 (fy 17-18) & for FY 18-19 Rs.150000 ( as small amount was utilised).SCN issued for FY 17-18 only.

my question is just for small amount was unpaid i.e Rs. 15000 (fy 17-18) & for FY 18-19 Rs. 150000 (for FY 18-19 no scn issued) ,huge penalty of 10% i.e Rs. 400000 is justified.because penalty should have been imposed only on rest of the amount i.e 10%(4000000+15000-4000000) i.e Rs. 1500 (or say 10000 minimum)

[SUSHIL BANSAL]

@amit agarwal Sir... the SCN as issued demanded tax, int u/s 50, penalty u/s 122. sub-sections not mentioned. In the order passed tax demand was appropriated as we reversed the excess claimed ITC in 3B.We deposited the whole wrongly claimed ITC & then the same was lying in cash ledger.

In the order Interest amount not worked out by department. It was mentioned that "Interest is liable to be recovered as per section 50(1).

Penalty imposed by mentioning.."I impose penalty of rs. 400000 upon them as per section 122(2)(a) of the CGST/SGST act.,2017 read with provision of the IGST act, 2017 for contravention of provisions of section 16(2), 39,42,155 ibid alo read with section 20 of the IGST act.,2017.

My question is when client deposited 40 Lacs voluntarily & failed to deposit just small amount of Int.of Rs.15000/ (which was deposited after order though amount was not worked out in order & we deposited in DRC-03-voluntarily clause). penalty of Rs. 400000/- (10% of tax) does not seems correct.Plz guide

[Padmanathan KV]

Dear Querist,

Pls see Section 73(8)

(8) Where any person chargeable with tax under sub-section (1) or sub-section (3) pays the said tax along with interest payable under section 50within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.

Your client has not deposited the interest (though it is a small amount) within 30 days of SCN. Though penalty of 10% of tax appears harsh, the penalty under sec. 73 is non-discretionary.

Only options would be to check for any relief on technicalities/ defects in the notice or proceedings. Pls consult an expert for the same.

[SUSHIL BANSAL]

but Section 73 (9) says..." The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order. [See Rule 142(4)]"

in my case tax determined is Nil as credit of tax paid/reversed has been given in the assessment order. Then it is written that penalty will be 10% of tax. As per my understanding this 10% should be on tax determined to be payable i.e. tax due+ Interest due.

In GST regime this happens on regular basis with one or other taxable persons that sometimes ITC wrongly claimed & then reversed but such reversal is done without interest & afterwards such interest is paid.

further question arises that whether this reversal of ITC in 3B will be treated as "tax paid & informed to proper officer in writing " as prescribed in Section 73(5).

plz guide

AI Summary

Client Challenges Penalty for Excess ITC Reversal Citing Voluntary Compliance and Section 73(8) of CGST Act A client mistakenly claimed excess Input Tax Credit (ITC) in January 2018, which was partially utilized in subsequent months. The excess ITC was reversed and the tax was paid in October 2018, with the reversal noted in GSTR-9. Despite this, a penalty under Section 122(2)(a) of the CGST Act was imposed. The client argues that since the ITC was voluntarily reversed and informed, the penalty is unjustified, especially as Section 73(8) waives penalties if taxes are paid via DRC-03. However, since the interest was paid post-SCN, experts suggest the penalty is mandatory, though harsh. The client seeks clarification on the penalty's correctness.