GST Interest Mandatory on Wrongfully Availed ITC Retained for 630 Days — Madhya Pradesh High Court
Case Overview: KJV Alloys Conductors Pvt. Ltd. Vs Union of India And Others (Madhya Pradesh High Court)
The Madhya Pradesh High Court recently pronounced a significant ruling on the question of whether interest under Section 50(3) of the Central Goods and Services Tax Act, 2017 is attracted when wrongfully availed Input Tax Credit (ITC) is retained for an extended period but allegedly not utilised for discharging output tax liability. The Court dismissed the writ petition filed by the assessee and upheld the interest demand of Rs. 54,29,792/-, along with the adjustment of refund from the electronic cash ledger against the said liability.
Background and Facts of the Case
The assessee, KJV Alloys Conductors Pvt. Ltd., is a private limited company engaged in the manufacture of transmission line equipment, including aluminium conductors, cables, and wire rods, duly registered under the GST regime.
The Transitional Credit Dispute
When the GST framework came into force on 01.07.2017, the assessee became eligible to carry forward CENVAT credit under Section 140(1) of the Central Goods and Services Tax Act, 2017. Accordingly, on 10.07.2017, the assessee filed Form TRAN-1 claiming transitional credit amounting to Rs. 1,31,07,632/-.
The assessee alleged that due to technical glitches plaguing the GST portal during the initial implementation phase, the transitional credit failed to reflect in its Electronic Credit Ledger (ECL). Fearing permanent loss of this substantial credit amount, the assessee proceeded to declare the same figure as ITC in its GSTR-3B return for July 2017.
Error Discovery and Reversal Attempts
At a later stage, the assessee identified that excess transitional credit of Rs. 3,48,523/- had been incorrectly claimed, and that the actual entitlement stood at Rs. 1,28,21,441/-. A corrected TRAN form was accordingly submitted on 26.12.2017 to rectify this discrepancy.
The assessee maintained throughout that:
- The credit reflected in GSTR-3B was never applied toward discharging output tax liability
- The amount remained idle in the electronic credit ledger
- Multiple attempts were made to reverse the credit through the portal, but technical difficulties repeatedly prevented successful reversal
The reversal of the full amount of Rs. 1,31,07,632/- was ultimately executed only in April 2019 through the available balance in the electronic credit ledger — approximately 630 days after the original credit was claimed on 28.08.2017.
Interest Demand and Refund Adjustment
Following the reversal, the departmental authorities issued notices demanding interest of Rs. 54,29,792/- under Section 50(3) read with Section 42(10) of the CGST Act, 2017, on grounds of wrongful availment of ITC.
Separately, the assessee had filed an application dated 12.11.2019 seeking refund of Rs. 32,00,000/- from its electronic cash ledger. The Assistant Commissioner, CGST & Central Excise Division, Chhindwara, adjusted this refund amount against the outstanding interest liability vide order dated 10.02.2020, which was subsequently upheld by the Joint Commissioner (Appeals), CGST, Bhopal, vide order dated 21.04.2021.
Aggrieved by both orders, the assessee approached the Madhya Pradesh High Court under Articles 226/227 of the Constitution of India.
Arguments Advanced by the Assessee
Counsel for the assessee raised the following primary contentions:
1. No Utilisation — No Interest
The assessee argued that since the ITC was never utilised toward any outward tax liability and was ultimately reversed entirely through the electronic credit ledger (without any debit from the electronic cash ledger), the fundamental condition for levy of interest stood absent. In the absence of actual utilisation, interest under Section 50(3) could not be imposed.