Penalty inspite of reversal of excess claimed ITC

[SUSHIL BANSAL]

Dear friends,

One of my client claimed excess ITC of Rs. 40 Lacs in the month of Jan.2018 (due to typo error). ITC reversed in 3B of Oct, 2018. The fact of reversal was also mentioned in GSTR-9 table No 12.

After assessment order Int u/s 50 for the utilisation out of this excess ITC availed Rs.15000 deposited through DRC-03.

Penalty of Rs. 4 Lacs imposed u/s 122(2)(a) (10% of Rs. 40 Lacs)

My point is that 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 should be treated as Nil as the tax was paid in 3B itself & GSTR-9 also filed & that is well before issuing the SCN, however in the assessment order it was mentioned that “as the amount of Rs. 40 Lacs has already been reversed in 3B,I appropriate the same in to the government account” that means whether tax determined to be treated as 40 Lacs?

Plz guide whether penalty of Rs. 4 Lacs u/s 122(2)(a) is valid?

AI Summary

Penalty for excess input tax credit may be invalid if credit reversed and interest paid before show cause notice issued.
If reversal and any interest on the excess input tax credit were self ascertained and paid before issuance of a show cause notice, penalty should not be leviable; if reversal or payment occurred after departmental action or only in response to notice or order, the officer may appropriate the credit and levy the statutory percentage penalty. Key determinants are timing of DRC 03 payment, whether the credit was utilised, and whether reversal preceded the notice.