Penalty and Interest could not be imposed when Credit was erroneously availed but not utilized

The Punjab and Haryana High Court in the case of M/s.Deepak Sales Corporation v. Union of India [CWP No. 283 of 2023 dated September 21, 2023] allowed the appeal filed by the Assessee by way of the writ petition and held that, the demand of interest and penalty is not tenable when the credit erroneously availed is reversed and such credit is not utilized by the Assessee. 

Facts

M/s. Deepak Sales Corporation ("the Petitioner") is a proprietorship trading concern and was previously registered under the Haryana VAT Act, 2003. The Petitioner got itself registered under the CGST Act after the introduction of GST. The Petitioner while filing returns and making the entry in the electronic credit ledger ("ECL"), for the month of August 2017, the Petitioner typed the amount of ITC as Rs.14,05,78,663/- instead of Rs.1,40,57,836/- thereby the Petitioner claimed the excess amount of ITC to the tune of Rs.12,65,20,827/-. Later, the Petitioner came to know about the error made in entering the amount. Thereafter, the Petitioner requested the Revenue Department ("the Respondent") via e-mail to guide the Petitioner, as being new to the GST Regime, is not aware of the procedure for reversing the ITC. Since no response was received by the Respondent, the Petitioner could not reverse excess ITC while submitting its return for the month of July 2018 which was later reversed by the Petitioner. 

The Petitioner was issued a Show Cause Notice dated October 27, 2020 ("the SCN") demanding the interest along with penalty. The Respondent vide Order dated March 31, 2021 ("the Order") confirmed the demand of interest. 

Aggrieved by the Order, the Petitioner filed the appeal wherein the Respondent vide Order dated April 29, 2022 ("the Impugned Order") held that the interest is payable on the amount Rs.21,13,354/- which was alleged to be wrongly utilized by the Petitioner and imposed penalty on the same. 

Aggrieved by the Impugned Order, the Petitioner filed the writ petition before the Hon’ble Punjab and Haryana High Court, challenging the Impugned Order, Order, and SCN on the ground that, the notice was not issued by the Proper Officer. Also, the Petitioner has not utilized the amount of excess ITC and the Respondent did not respond to the query raised by the Petitioner regarding reversal of ITC. Therefore, the Petitioner is not required to pay any amount of interest or penalty. 

Issue

Whether Penalty and Interest be imposed when Credit erroneously availed is not utilized by the Assessee?

Held

The Hon’ble Punjab and Haryana High Court in the case of CWP No. 283 of 2023 held as under:

• Observed that, as per Section 50(3) of the CGST Act, the taxable person who makes the undue or excess claim of ITC shall pay interest on such undue or excess claim at the rate not exceeding twenty-four percent. 
• Relying upon the judgment of Commissioner of Central Excise v. Jagatjit Industries Ltd. [S.T.A. No. 41 of 2010 dated December 24, 2010], the Court observed that, when the cenvat credit was wrongly availed and was reversed before the said credit was utilized, the Revenue Department is not justified for the demand of interest. The Court also relied upon the judgment of CCE Rohtak v. Grasim Bhiwani Textile Ltd. [C.E.A No. 38 of 2016 dated May 15, 2018], wherein it was observed that, when the cenvat credit was reversed prior to the utilization, demand of interest and penalty was untenable. 
• Noted that, the legislative intent behind the provision is that where ITC/Cenvat credit is wrongfully reflected in ECL, the same is not sufficient to invoke penal proceedings until the said ITC is put to use, and no demand of interest or penalty is tenable when the said claim wrongfully reversed is not used by the taxable person.
• Opined that, when it is proved that the amount of excess ITC entered in the ECL, was not utilized by the Petitioner and reversed prior to utilization of the credit, the demand of interest and penalty is not tenable, and the Petitioner could not be burdened with the same. 
• Held that, the Petitioner is not liable to pay the amount of interest or penalty on the excess ITC wrongly entered by the Petitioner in its ECL. Therefore, the Impugned Order is set aside, and the appeal is allowed.