Blog No. 70 : Liability to pay interest in a situation where transitional credit was firstly availed in Form GSTR-3B and was later reversed when the same was posted to electronic credit ledger

The issue of transitional credit has always been in light especially when the registered person availed an amount equivalent to said credit in the return filed in Form GSTR-3B and later, reversed the transitional credit posted to Electronic Credit Ledger.

Recently, Hon’ble Madras High Court in the case of M/s. Grundfos Pumps India Pvt. Ltd. Vs The Joint Commissioner of GST & Central Excise, Chennai reported as 2023 (4) TMI 585 held that in such cases, assessee cannot be burdened with interest liability.

Read more about this case below:

Fact of the case

1. The petitioner is a dealer who is migrated to Central Goods and Service Act, 2017 from Central Excise as well as the Finance Act, 1994.
2. Petitioner had filed Form GST TRAN-1 on 10.07.2017 and 11.08.2017. Though the credit has been transitioned but it could not find place in Electronic Credit Ledger.
3. Seeing that the credit was unavailed in Electronic Credit Ledger, petitioner availed the same as ITC available in Form GSTR-3B.
4. After availing the credit in Form GSTR-3B, the petitioner observed that the same has reflected in Electronic Credit Ledger. Therefore, the petitioner reversed the credit on 20.07.2018.
5. GST Audit wing raised the demand for interest at the rate of 24% on ITC availed in Form GSTR-3B despite the fact that same was never utilized for payment of output tax liability.

Submission by the petitioner

6. With the substitution of section 50(3) of the CGST Act, 2017, interest will be levied only in a situation where there has been actual utilisation of credit by the assessee concerned.
7. The error is on account of department with the maintenance of Electronic Credit Ledger.

Judgement

8. The original error of non-maintenance of ECL is admittedly attributable to the department.
9. Moreover, the petitioner has not utilized the credit.
10. There is no liability for interest under section 50(3) of the CGST Act, 2017.

Our Remarks

11. There had been similar kind of issues with certain taxpayers, where on account of procedural issues or issues concerning technicalities of the transitional form, the credit could not be reflected in the Electronic Credit Ledger. In such circumstances, pending the resolution of the issue, an amount equivalent to the transitional credit was availed in Form GSTR-3B as “ITC Available”. Said credit might or might not have been utilized for the payment of output tax depending upon transactions.
12. In our view, even in such kind of circumstances, the provisions of section 50 shall not apply and the taxpayers should not be made subject to interest liabilities subject ofcourse to the condition that transitional credit posted to Electronic Credit Ledger is not utilized for the payment of output tax liability.