2026-VIL-330-GSTAT-LCK
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  2. 2026-VIL-330-GSTAT-LCK

SGST Tribunal

GST - Interest under Section 50(3) of the CGST Act, 2017 read with Rule 88B(3) on wrongly availed Input Tax Credit - Appellant availed Input Tax Credit in excess of the credit reflected in the supplier-based return and voluntarily reversed it through Form GST DRC-03 before the SCN was issued. The tax demand on the difference in liability was set aside entirely by the FAA, but interest on the reversed credit and a residual penalty were sustained - Whether interest is leviable under Section 50(3) when the Appellant had sufficient unutilised balance in the Electronic Credit Ledger throughout the relevant period and the disputed credit was reversed without being utilised - HELD - Section 50(3), as amended retrospectively from 01.07.2017, provides for interest where input tax credit is wrongly availed and utilised. The utilisation is an additional condition which must be satisfied before interest liability can arise - Under the Explanation to Rule 88B(3), credit is deemed to be utilised when the balance in the Electronic Credit Ledger falls below the amount of wrongly availed credit. As clarified by the Circular dated 17.07.2023, the balance under the integrated, central and state tax heads is considered collectively, and where the aggregate balance has not fallen below the wrongly availed credit, it cannot be treated as utilised. The report of the jurisdictional authority, acknowledged by the Respondent, showed that the credit balance always remained higher than the reversed amount, and no contrary material was placed on record - The disputed credit cannot be treated as utilised within the meaning of Section 50(3), the essential condition for levy of interest is not fulfilled, and the interest sustained by the FAA is set aside – The appeal is allowed - Sustainability of residual penalty after the tax demand is set aside - Penalty under Section 73 of the CGST Act, 2017 - Survival of a residual penalty sustained by the FAA when the entire substantive tax demand has been set aside - Appellant contended that no independent basis remained for the residual penalty once the tax demand was set aside and the interest was not leviable. The Respondent did not demonstrate any independent basis, and no cross appeal against the order of the FAA was filed - Whether the penalty sustained by the FAA under Section 73 can survive when the substantive tax demand has been set aside - HELD - A penalty under Section 73 cannot be sustained as a matter of course, and its imposition must have a valid statutory foundation supported by the facts of the case. The entire tax demand which formed the basis of the original proceedings no longer survives, no independent basis for the residual penalty was demonstrated by the Respondent, and the alleged utilisation of the disputed credit was also not established - The residual penalty is not sustainable, the appeal is allowed.
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