No interest on reversal of wrongful availment of credit

The Hon'ble Madras High Court in the case of M/s F1 Components Pvt. Ltd. v. The State Tax Officer, Chennai [W.P. No.6631 of 2021 And WMP No.7188 of 2021, dated July 09, 2021] partly set aside the order passed by the Revenue Department to the extent that interest on remittances by way of adjustment of electronic credit register is not leviable, in a matter challenging levy of interest under Section 50 of the Central Goods and Services Tax Act, 2017 ('the CGST Act') on reversal of wrongly availed Input Tax Credit ('ITC') and upheld the levy of interest on the belated cash remittance. Held that, the interest on cash remittances is compulsory and mandatory. Further held that, in a case where the claim of ITC by an assessee is erroneous, then the question of Section 42 of the CGST Act does not arise at all, since it is not the case of mismatch, one of wrongful claim of ITC.

Facts

This Petition has been filed by M/s F1 Components Pvt. Ltd. ('the Petitioner”), being aggrieved by the order passed by the Revenue Department ('the Respondent'), dated January 27, 2021 ('the Impugned Order'), levying interest under Section 50 of the CGST Act relating to interest on cash remittances as well as remittances by way of adjustment of electronic credit register..

The Petitioner has relied on the provisions of Section 42 of the CGST Act which provides for a notice to be issued by the Assessing Authority ('A.A.') in the case of mismatch of particulars at the end of the Petitioner, vis-à-vis particulars furnished in the returns of the selling/purchasing dealer.

Issue

• Whether the Petitioner is liable to pay interest on the belated cash remittance?

Held

The Hon'ble High Court of Madras in W.P. No.6631 of 2021 And WMP No.7188 of 2021, dated July 09, 2021, held as under:

• Referred to the decision of the Hon'ble Madras High Court in the case of M/s. Maansarovar Motors Private Limited [WP.No.4468 of 2020, dated September 29, 2020] wherein, the Court set aside the orders for levying interest on ITC as applied on delayed payment in line with GST Council's recommendation of levying interest on net cash liability only with effect from July 1, 2017 and it was held that the proviso to Section 50 of the CGST Act is retrospective in operation notwithstanding the notification bringing it into effect from September 1, 2020.
• Analysed the provisions of Section 42 of the CGST Act, and noted that, the same is not applicable as the Petitioner has accepted the error in claim on receipt of intimation of wrongful claim of ITC by the Respondent and has accordingly reversed ITC through voluntary payment of tax in Form GST DRC-03. Whereas, such provisions can only be invoked, in case the mismatch is on account of the error in the database of the Respondent or a mistake that has been occasioned at the end of the Respondent. But in the present case, the Petitioner's claim for ITC is erroneous, and it is not the case of mismatch.
• Modified and set aside the Impugned Order to the extent that interest on remittances by way of adjustment of electronic credit register is not leviable.
• Held that, the levy of interest on belated cash remittance is compensatory and mandatory.

Relevant Provisions

Section 50 of the CGST Act

'Interest on delayed payment of tax.

50. (1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council.

Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.

(2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.

(3) 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.”

Section 42 of the CGST Act

'Matching, reversal and reclaim of input tax credit

42. (1) The details of every inward supply furnished by a registered person (hereafter in this section referred to as the 'recipient”) for a tax period shall, in such manner and within such time as may be prescribed, be matched -

• with the corresponding details of outward supply furnished by the corresponding registered person (hereafter in this section referred to as the 'supplier”) in his valid return for the same tax period or any preceding tax period;
• with the integrated goods and services tax paid under section 3 of the Customs Tariff Act, 1975 (51 of 1975) in respect of goods imported by him; and
• for duplication of claims of input tax credit.

(2) The claim of input tax credit in respect of invoices or debit notes relating to inward supply that match with the details of corresponding outward supply or with the integrated goods and services tax paid under section 3 of the Customs Tariff Act, 1975 (51 of 1975) in respect of goods imported by him shall be finally accepted and such acceptance shall be communicated, in such manner as may be prescribed, to the recipient.

(3) Where the input tax credit claimed by a recipient in respect of an inward supply is in excess of the tax declared by the supplier for the same supply or the outward supply is not declared by the supplier in his valid returns, the discrepancy shall be communicated to both such persons in such manner as may be prescribed.

(4) The duplication of claims of input tax credit shall be communicated to the recipient in such manner as may be prescribed.

(5) The amount in respect of which any discrepancy is communicated under sub-section (3) and which is not rectified by the supplier in his valid return for the month in which discrepancy is communicated shall be added to the output tax liability of the recipient, in such manner as may be prescribed, in his return for the month succeeding the month in which the discrepancy is communicated.

(6) The amount claimed as input tax credit that is found to be in excess on account of duplication of claims shall be added to the output tax liability of the recipient in his return for the month in which the duplication is communicated.

(7) The recipient shall be eligible to reduce, from his output tax liability, the amount added under sub-section (5), if the supplier declares the details of the invoice or debit note in his valid return within the time specified in sub-section (9) of section 39.

(8) A recipient in whose output tax liability any amount has been added under sub-section (5) or sub-section (6), shall be liable to pay interest at the rate specified under sub-section (1) of section 50 on the amount so added from the date of availing of credit till the corresponding additions are made under the said sub-sections.

(9) Where any reduction in output tax liability is accepted under sub-section (7), the interest paid under sub-section (8) shall be refunded to the recipient by crediting the amount in the corresponding head of his electronic cash ledger in such manner as may be prescribed:

Provided that the amount of interest to be credited in any case shall not exceed the amount of interest paid by the supplier.

(10) The amount reduced from the output tax liability in contravention of the provisions of sub-section (7) shall be added to the output tax liability of the recipient in his return for the month in which such contravention takes place and such recipient shall be liable to pay interest on the amount so added at the rate specified in sub-section (3) of section 50.”