In the scenario that the credit was repaid by the petitioner prior to being used, no interest would be due: HC

Grundfos Pumps India (P.) Ltd. v. Joint Commissioner of GST & Central Excise – [2023] (Madras)

The petitioner transitioned into the GST regime after being an assessee under the previous Central Excise regime. When the GST was implemented, the petitioner carried the unused credit forward as a transitional credit. The petitioner included the same amount of eligible ITC in Form GSTR-3B return, but the claimed credit was not shown in the Electronic Credit Ledger (ECL). During an audit, the GST department’s audit division wanted interest on the ITC that was reported in GSTR-3B.

The petitioner claimed that ITC was reversed without being set against or utilized against output tax burden at any point in time when it appeared in ECL without explanation. But the government issued a demand order that included interest. In response to the imposition of interest, it filed a writ petition.

The Honorable High Court remarked that only when the assessee actually uses the credit, does the assessee become liable for interest. By virtue of a 2022 change that took effect retrospectively from 2017, interest obligation was only incurred when ITC was improperly claimed and used, which had a negative impact on income. However, in this instance, the department was admittedly at fault for the initial mistake of failing to maintain ECL. Additionally, the petitioner did not use credit and had it reversed.

The assailed order, to the extent that it assessed interest under section 50(3), was to be quashed since it was determined that there was no obligation for interest.