Kumaran Filaments P) LTD. vs. The Commissioner Of Central GST

Facts

The petitioner, Tvl. Kumaran Filaments (P) Ltd., sought to quash an order passed by the Assistant Commissioner, CGST and Central Excise, Tirunelveli Division. The petitioner had claimed unavailed CENVAT credit of Rs. 50,21,080/- from the pre-GST regime, which was carried forward as Input Tax Credit (ITC) through TRAN-1. The revenue authorities initially informed the petitioner that the ER-1 returns for April-June 2017 were not filed, demanding reversal of the credit. Although the petitioner submitted these returns online, they were rejected due to technical glitches. Subsequently, the petitioner reversed the credit in GSTR-3B in May 2019. A show cause notice was issued under Section 73(1) of the CGST Act proposing disallowance of the transitional credit, levy of interest under Section 50(3), and penalty under Section 122(2)(a). The impugned order disallowed the credit, appropriated it, and demanded interest and penalty.

Held

The Court held that the demand for interest was unsustainable. The reasoning was that the entire amount of Rs. 50,21,080/- was available in the petitioner's credit balance in the electronic ledger from the pre-GST period until it was appropriated by the impugned order. Since the revenue was in possession of the credit, which was 'good as cash', and there was no loss to the revenue, no interest was leviable. The Court relied on the principle established in M/s. Maansarovar Motors Pvt. Ltd. case and other precedents, stating that appropriation of tax demand from credit cannot carry interest. Regarding the penalty, the Court held that it was not imposable because the petitioner had not wrongly availed or utilized the ITC. The credit remained as a balance and was not used to discharge any output tax liability. Section 122(2)(a) requires the ITC to be wrongly availed or utilized, which was not the case here. Therefore, the demand for interest and the imposition of penalty were set aside.

Key Issues

1. Whether the demand for interest under Section 50(3) of the CGST Act is sustainable when the entire tax demand was appropriated from the petitioner's available credit balance, which was in the electronic ledger from the pre-GST period. 2. Whether the imposition of penalty under Section 122(2)(a) of the CGST Act is justified when the petitioner never utilized the input tax credit wrongly, and the amount remained as a credit balance until appropriated by the revenue. Petitioner's Arguments: - The petitioner argued that no interest should be demanded as the entire tax demand was appropriated from their credit balance, which was available throughout the period. They relied on the decision in M/s. Maansarovar Motors Pvt. Ltd. vs. The Assistant Commissioner, Poonamalle Division, Chennai and others, which held that interest is not leviable when tax is appropriated from available credit. Revenue's Arguments: - The judgment does not record any specific arguments presented by the respondents (revenue) on the issues of interest and penalty.