The Madras High Court has held that interest on delayed credit reversal in inverted duty structure by textile manufacturers is unjustified.
The bench of Justice C. Saravanan has observed that levy of interest of Rs.59,35,528/- purportedly in exercise of power under Section 50(3) of the CGST Act, 2017 is unjustified. The question of levy of interest under the impugned circular would apply to the petitioner only if there was a wrong utilization of the Input Tax Credit accumulated prior to the cut off date in the Notification No.20/2018- Central Tax Rate dated 26.07.2018.
The petitioner/assessee is in the business of manufacturing of textile products under Chapters 52, 53, 54, 55 and 60 of the Customs Tariff Act, 1945 which is applicable for the purpose of classification and for determination of tax for payment of tax under the provisions of respective GSTN enactments of the year 2017.
The petitioner is under the inverted duty structure as the rate of duty on input tax is higher as compared to the tax liability on the final products under the provisions of the respective GST enactments, as a result of which there is an accumulation of Input Tax Credit.
By virtue of Notification No.5/2017-Central Tax (Rate) dated 28.06.2017, the Central Government on the recommendation of GST Council notified several products including the products manufactured by the petitioner at Serial Nos.3,4,5,6 and 7 to the above notification holding that no refund of input tax credit shall be allowed, where the credit was accumulated on account of inverted rate of tax where the rate of tax on inputs was higher than rate of tax of output supplies of such goods.
Thus, an exception was made for the purpose of refund under Section 54 (3) of the CGST Act, 2017 by denying refund of the accumulated input tax credit on account of inverted rate of duty structure. The Industry appears to have persuaded the GST Council to reverse this decision as is reflected in the amendment to Notification No.5/2017-Central Tax (Rate) dated 28.06.2017.
Thus, the Input Tax Credit accumulated on supplies received on or after 1st April 2018 in respect of goods mentioned at Serial Nos.1,2,3,4,5,6,6A,6B,6C and 7 were allowed to be claimed by way of refund under Section 4 of the CGST Act, 2017.
However, in respect of accumulated Input Tax Credit lying in its credit for the past period for a sum of Rs.6,86,66,289/- as on 31.07.2018 was to lapse. However, if there was delay in reversal of such credit availed in the past, the revenue was to be calculated starting from the due date of filing of return in FORM GSTR-3B for the month of August, 2018 till the date of reversal of said amount through FORM GSTR- 3B or through FORM GST DRC-03,as the case may be.
The registered person who has reversed the amount of credit to be lapsed in the return in FORM GSTR-3B for any month subsequent to August, 2018 or through FORM GST DRC-03 subsequent to the due date of filing of the return in FORM GSTR-3B for the month of August, 2018 would remain eligible to claim refund of unutilized ITC on account of accumulation due to inverted tax structure w.e.f., 01.08.2018.
However, such refund shall be granted only after the reversal of the amount of credit to be lapsed, either through FORM GSTR-3B or FORM GST DRC-03, along with payment of interest, as applicable.
The court held that the petitioner had no occasion to utilize the accumulated credit after the cut off date towards the tax liability incurred, the question of imposing interest under Section 50 (3) in terms of above said circular cannot be justified.
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Case Details
Case Title: Sri Cheran Synthetics India Private Limited Versus The Union of India
Case No.: W.P.No.13624 of 2021
Date: 24.10.2024
Counsel For Petitioner: Avinash Poddar
Counsel For Respondent: AP.Srinivas
