ITC Wrongfully Availed But No Fraud/Misstatement Proven; Madras High Court Imposes Token Penalty

The Madras High Court has imposed a token penalty of Rs. 10,000 on the assessee instead of a higher penalty as the assessee wrongfully availed of the input tax credit (ITC), but the department could not prove fraud or misstatement on the part of the assessee.

The bench of Justice C. Saravanan has observed that the assessee reversed the ITC. Penalties under Section 74 deal with situations where credit is availed or utilized by reason of fraud or any wilful misstatement or suppression of facts that was not proved by the department.

The petitioner/assessee is a Central Excise Assessee under the provisions of the Central Excise Act, 1944, r/w. Central Excise Rules, 2002. With the implementation of GST with effect from July 1, 2017, the petitioner transitioned various amounts as input tax credits under Section 142 of the CGST Act, 2017.

The assessee reversed a sum of Rs. 11,27,932 before the issuance of the show cause notice dated July 26, 2021. The Assistant Commissioner of GST and Central Excise had earlier confirmed the penalty and interest to the tune of approximately Rs. 57.17 lakh.

The assessee has filed an appeal before the Joint Commissioner (Appeals). The Joint Commissioner (Appeals) set aside the order passed by the Assistant Commissioner of CGST and CE on the issue of levy of interest alone and upheld the imposition of a penalty.

Since the Tribunal that is contemplated under the provisions of the CGST Act, 2017, has not been constituted so far, the assessee has filed this Writ Petition to review the order passed by the department.

The assessee contended that he had wrongly transitioned the credit under Section 142 of the CGST Act, 2017. Therefore, the proceedings were initiated against the petitioner under Section 74 of the CGST Act, 2017. It is only after the issuance of the show cause notice on December 8, 2021, that the petitioner has reversed the ITC.

The department contended that irrespective of whether the credit was used, utilized, or merely availed, the language in Sections 74(1) and 74(5) of the CGST Act makes it clear that the penalty has to be levied at the rate prescribed under these provisions. Under Section 74(1) of the CGST Act, it has been clearly stated that credit has been wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of facts with an intention to evade tax. Therefore, irrespective of whether the credit was utilized or not, the petitioner is liable to penalty under Sections 74(1) and 74(5) of the respective GST Act. It is therefore submitted that the Writ Petition is liable to be dismissed.

The court held that the order sustaining the penalty under Sections 74(1) and 74(5) of the CGST Act is unsustainable. The imposition of a penalty is unjustified. However, the petitioner has availed input tax credit, which was not eligible to be availed but could have resulted in the wrong utilization of input tax credit. A token penalty of Rs. 10,000 is imposed on the petitioner.

Counsel For Petitioner: S.Ganesh

Counsel For Respondent: N. Dilipkumar

Citation: 2024 LiveLaw (Mad) 255

Case Title: M/s.Greenstar Fertilisers Limited Versus The Joint Commissioner (Appeals)

Case No.: W.P.(MD)No.26254 of 2022 and W.M.P. (MD) Nos. 20437 and 20438 of 2022

Click Here To Read The Order