Interest under Sections 73 and 74 was only incurred when this ITC was improperly accessed and used
Fact and issue of the case
Tvl. Aathi Hotel is a registered taxpayer under the Tamil Nadu Goods and Services Tax Act, 2017, with GST1N: 33AEBPV4994D IZB, having migrated from the Tamil Nadu Value Added fax Act, 2006 (TIN: 33806408711).
The taxpayer had filed his statement of Transitional Input Tax Credit in TRAN 1 under Section 140(2) of the Tamil Nadu Goods and Services Tax Act, 21H7 mad with Rule 117(1) & (2) of the Tamil Nadu Goods and Services Tax Rules, 2017, claiming an SGST (State Tax) amount of Rs. 3,86,271/- as Transitional Input Tax Credit on capital goods unavailed under TNVAT Act, 2006.
But the unuvailed capital goods ITC as per VAT returns was Rs. 229850/-. Hence, the excess amount of Rs. 156421/- is not allowable. In respect of the amount Rs. 229850/-, the dealer submitted invoices.
On detailed scrutiny, it is found that,
1) though the dealer has registered himself as star hotel, the dealer does not possess the mandatory cenifiCate from the Tourism Department, meaning that the dealer cannot avail ITC under Sec. 7(1)(a) of the TNVAT Act, 2006.
2) since the dealer is a hotelier, he comes under Sec. 7(1)(b), read with Sec. 7(2) of the TNVAT Act, 2006, where ITC is not available.
It is the case of the petitioner that though the petitioner had filed TRAN-1 and claimed a credit of Rs.3,86,271/-, the aforesaid credit was never utilized and therefore even though the petitioner had failed to reply to the Show Cause Notice dated 09.05.2019 followed by a summary Show Cause Notice dated 31.12.2019, the question of levying interest and imposing penalty on the petitioner under the provisions of Tamil Nadu Goods and Services Tax Act, 2017 does not arise inasmuch as the entire transitional credit of Rs.3,86,271/- was reversed by the petitioner in the monthly returns for the month of January 2020 for the Assessment Year 2019-2020. 3. The learned counsel for the petitioner submits that Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017 will get attracted only where there is a wrong utilization of credit availed. In this connection, the learned counsel for the petitioner has referred to Section 50 (3) of the Act. It is submitted that interest under Section 50 (3) of the Act will apply only in the case of a person who makes undue or excess claim of Input Tax Credit under sub-section 10 of Section 42 or undue or excess reduction in output tax liability under subsection 10 of Section 43 in which case, interest shall be paid on such undue or excess claim or on such undue or excess reduction/deduction as the case may be, at such rate not exceeding 24 percentage as may be notified by the Government on the recommendations of the GST Council.
The learned counsel for the petitioner further submits that Section 42 (10) of the Tamil Nadu Goods and Services Tax Act, 2017 is not attracted in the facts and circumstances of the case, as the petitioner has never utilized the credit which was attempted for transition by filing TRAN-1. He submits that subsection 10 to Section 42 will apply when the amount reduced from the output tax liability in contravention of the provisions of sub-section 7 which has to be added to the output tax liability of the recipient in his return for the month in which contravention takes place and such recipient shall be liable to pay tax/interest on the amount so added at the rate specified under sub-section 3 of Section 50 of the Tamil Nadu Goods and Services Tax Act, 2017.
Observation of the court
The Hon’ble Supreme Court in Union of India Vs. Ind-Swift Laboratories Limited  4 SCC 635 while construing the provisions of erstwhile Cenvat Credit Rules 2002, held that wrong filing of credit rule attracts interest under the Provisions of the Cenvat Credit Rules 2002 read with Central Excise Act, 1944. There the credit was availed and the benefit of refund was claimed. The case was attempted to be settled after payment of the amount ITC availed utilized before the settlement commission which circled interest at 10% per annum from the due date as per Section 11 AB of the Central Excise Act, 1944. In paragraph 17 the Court held as under:-
“17. We have very carefully read the impugned judgment and order of the High Court. The High Court proceeded by reading it down to mean that where CENVAT credit has been taken and utilized wrongly, interest should be payable from the date the CENVAT credit has been utilized wrongly for according to the High Court interest cannot be claimed simply for the reason that the CENVAT credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. Therefore, High Court on a conjoint reading of Section 11AB of the Act and Rules 3 & 4 of the Credit Rules proceeded to hold that interest cannot be claimed from the date of wrong availment of CENVAT credit and that the interest would be payable from the date CENVAT credit is wrongly utilized. In our considered opinion, the High Court misread and misinterpreted the aforesaid Rule 14 and wrongly read it down without properly appreciating the scope and limitation thereof. A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. The issue is as to whether the aforesaid word “Or” appearing in Rule 14, twice, could be read as “AND” by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole we find no reason to read the word “OR” in between the expressions ‘taken’ or ‘utilized wrongly’ or ‘has been erroneously refunded’ as the word “AND”. On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest”
The ratio in the above case is to be distinguished on facts as in the present case although credit was wrongly attempted to be transitioned, it was never utilized. Further before levying penalty or interest, a proper excise was required to be made by a proper officer under Section 74(10) after ascertaining whether the credit was wrongly availed and wrongly utilised. Though under Sections 73(1) and 74(1) of the Act, proceedings can be initiated for mere wrong availing of Input Tax Credit followed by imposition of interest penalty either under Section 73 or under Section 74 they stand attracted only where such credit was not only availed but also utilised for discharging the tax liability. The proper method would have been to levy penalty under Section 122 of TNGST Act, 2017.
Considering the above, I am inclined to hold that the petitioner is not liable to penalty imposed. At the same time, since there was an attempt to wrongly avail credits and utilise the same as and when the tax liability would have arisen, the petitioner is held liable to a token penalty. Considering the gravity of the mistake committed by the petitioner, a penalty Rs.10,000/- is imposed on the petitioner. The impugned order stands partly quashed.
Accordingly, this writ petition stands partly allowed in terms of the above observations. No costs. Consequently, connected miscellaneous petitions are closed.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee