Case: M/s Deepak Sales Corporation Vs Union of India before the Punjab and Haryana High Court. Date of decision 21.09.2023
The Punjab and Haryana High Court’s ruling in the aforementioned case emphasizes that interest and penalties should only be imposed when excess input tax credit has been utilized, not merely claimed or reflected in the electronic ledger. This decision clarifies the conditions under which interest and penalties can be imposed, providing relief for taxpayers who have corrected their errors promptly.
Facts of the case
- The company, operating since 2010, was initially registered under the Haryana Value Added Tax Act, 2003. After the introduction of the Central Goods and Services Tax Act, 2017, it migrated to the GST regime.
- In July 2017, the company had an available ITC of Rs. 2,41,50,783 for discharging its output central tax liability for that month. The said ITC was on account of credit availed on inputs during the month of July 2017 and CENVAT credit transaction from the erstwhile VAT regime.
- During the month of August 2017, the taxpayer was entitled to avail ITC to the extent of Rs.1,40,57,836/-However, while making entry in the electronic credit ledger and filing return for the month of August 2017, inadvertently the taxpayer typed the amount of ITC as Rs.14,05,78,663/- instead of Rs.1,40,57,836/- thereby claiming excess ITC to the tune of Rs.12,65,20,827/-.
- However, the central tax liability for the same period was Rs. 1,61,71,190, and after settling it using ITC, the company was left with a balance of Rs. 13,26,03,037 in the electronic credit ledger.
- The company realized the error when filing its return in December 2017. It subsequently requested guidance from the tax authorities on how to reverse the excess ITC but received no response.
- Ultimately, the company corrected the error by reversing the excess ITC in its return for July 2018.
- In 2020, a GST audit was conducted, leading to a show cause notice that demanded interest of approximately Rs. 1,46,62,551 @18% on entire amount of excess tax credit, for a period of 235 days and also proposed a penalty. The company replied to the notice, and while the interest demand was upheld, the penalty was not imposed.
- The taxpayer through his counsel also placed reliance on as Commissioner of Central Excise, Ludhiana v. Jagatjit Industries Ltd., (P&H) & CCE Rohtak v. Grasim Bhiwani Textile Ltd., (P&H).
- The argument put forth by the company was that it never utilized the excess Input tax credit, and therefore, no interest or penalty should be imposed.
- The taxpayer also aggrieved that it was due to not getting any response on the part of the GST Department, that it could not reverse the excess tax credit till July 2018.
Held
- From a purposeful reading of the provisions underlying Section 50 of the CGST Act, the legislation intent that stands reflected is that where an input tax credit is wrongfully reflected in electronic ledger, the same itself is not sufficient to draw penal proceedings until the same or any part of such ITC is put to use so as to become recoverable and if such input tax credit is reversed before utilization, then even the demand of interest and penalty cannot be said to be tenable.
- The court cited precedent cases, where it was established that if excess tax credit was reversed before being utilized, no interest or penalty should be levied.
- It was held that the taxpayer was not liable to pay the amount of interest or penalty on the excess ITC wrongly entered by it in its electronic credit ledger for the relevant period.