Madras High Court ruled that interest is not payable on ITC reversed/tax paid through utilization of ITC as per electronic credit ledger

In a writ petition (no. 6631 of 2021) filed by the petitioner M/s. F1 Auto Components Private Limited (Petitioner), the honorable Madras High Court ruled that interest is payable on that component of ITC which is reversed through tax payment in cash and not for the utilization of credit (ITC) through electronic credit ledger. 

The petitioner filed a writ petition under article 226 of the constitution asking the honorable Madras High Court to look into the order dated 27-01-2021 passed by the State Tax Officer ordering payment of interest on ITC reversed by filling DRC-03 wherein liability settled in cash as well as credit balance in electronic credit ledger. A single judge bench of justice Dr. Sunita Sumanth held that interest u/s. 50 of CGST Act, 2017 is payable only on the cash component of tax paid/ITC reversed and not on tax paid/ITC reversed through utilization of credit in electronic credit ledger. The honorable Madras High Court also held that the provisions of Section 42 (if the input tax credit claimed by the recipient in respect of inward supplies 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) can only be invoked in a situation where the mismatch is on account of the error in the database of the revenue or a mistake that has been occasioned at the end of the revenue. In a case where the claim of ITC by an assessee is erroneous, as in this case, then the question of Section 42 does not arise at all, since it is not the case of mismatch, one of wrongful claim of ITC. As far as the levy of interest on belated cash remittance is concerned, it is compensatory and mandatory and the levy is upheld to this extent

The Court relied upon the judgement of same court in the case of Maansarovar Motors Private Limited vs. The Assistant Commissioner of GST (Writ Petition No. 28437 of 2019 etc. batch order dated 29.09.2020). In the case of Maansarovar Motors Private Limited, the subject matter has been discussed at length. Reliance has been placed by the honorable court on proviso to section 50 inserted with retrospective amendment, notification 63/2020-Central Tax issued on 25th August, 2020, press release issued by CBIC dated 26th August, 2020, judgement of Honorable Supreme Court in the case of Eicher Motors pronounced under Central Excise Act and Rules and few more judgements pronounced by the Honorable Supreme Court under Income Tax Act. The Honorable Madras High Court in the said case clearly stated that interest is not payable on tax liability settled through credit lying in electronic credit ledger.

Both the aforesaid judgements of Madras High Court pronounced in favour of the taxpayer are well appreciated and can be relied upon. In several cases, tax officers are taking a view of levying interest on tax paid/ ITC reversed through utilization of credit in electronic credit ledger. The aforesaid judgements can be referred in response to Show Cause Notice issued by the tax officer. We may expect judgements on the subject matter from other courts as well in due course.  

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