Wrong Input Claimed Reversed Through DRC03

[SUDESHKUMAR AGARWAL]

Respected Sir/Madam

One of my client wrongly availed input of Cess in FY 2021-22. The mistake came in to knowledge while filing Annual Return. In the business of my client Cess is not chargeable as output tax hence not utilised ever and this wrong credit availed was paid through DRC-03 after filing Annual Return.

I want to know that can department demand any interest / penalty on this un-utilised input. The client is based in Delhi. Please also give case laws of Hon'ble High Courts and/or Hon'ble Supreme Court, if any.

Regards

CA Sudesh Kumar Agarwal

[KASTURI SETHI]

2022 (3) TMI 442 - MADRAS HIGH COURT TVL. KUMARAN FILAMENTS (P) LTD. Versus COMMR. OF CGST & C. EX., MADURAI

 

[KASTURI SETHI]

2011 (2) TMI 6 - SUPREME COURT UNION OF INDIA Versus IND-SWIFT LABORATORIES LTD.

 

 

[Shilpi Jain]

No interest or penalty can be levied as the ITC though availed has not been utilised.

[Shilpi Jain]

Provision of section 50(3) of the CGST Act also supports this, which is mutatis mutandis applicable to the Compensation Cess.

[YAGAY and SUN]

In the case where the client, based in Delhi, wrongly availed input of Compensation Cess in FY 2021-22 and the same was never utilised towards payment of any output tax liability due to inapplicability in their business, and subsequently reversed and paid through DRC-03 after filing of Annual Return, the department cannot demand interest or penalty on such unutilised credit. The Hon’ble Madras High Court in the case of TVL. Kumaran Filaments (P) Ltd. v. Commr. of CGST & C. Ex., Madurai [2022 (3) TMI 442] held that mere availment without utilisation does not attract interest liability. Further, the Hon’ble Supreme Court in Union of India v. Ind-Swift Laboratories Ltd. [2011 (2) TMI 6] related to CENVAT regime was distinguished in subsequent GST jurisprudence as the GST law, particularly Section 50(3) of the CGST Act (applicable mutatis mutandis to Compensation Cess), mandates interest only on “wrongly availed and utilised” input tax credit. Since there was no utilisation of such wrong credit, no interest or penalty is legally sustainable.

AI Summary

Input tax credit misuse: interest applies only when wrongly availed credit is utilised, not when reversed.
Interest for wrongly availed Compensation Cess credit is contingent on utilisation of that credit; where such credit was availed but not utilised and later reversed with payment via corrective filing after the annual return, the applicable GST interest framework (applied mutatis mutandis to Compensation Cess) does not support interest or penalty tied to mere availment.