R.S. Traders Vs Commissioner State Goods And Services Tax Department (GSTAT Lucknow)
Summary : The Goods and Services Tax Appellate Tribunal (GSTAT), Lucknow, rejected the appeal of R.S. Traders, a scrap materials trader, and upheld interest of ₹2,48,600.64 under Section 50(3) of the UPGST Act, 2017. Scrutiny of returns for FY 2021–22 identified excess input tax credit (ITC) of ₹3,51,049.36, comprising ₹70,155 each in CGST and SGST and ₹2,10,739.36 in IGST. The trader voluntarily reversed or deposited the principal amount through Form GST DRC-03 on 27 October 2025. The proper officer confirmed interest through Form GST DRC-07 dated 29 December 2025, and the first appellate authority upheld it after finding that the Electronic Credit Ledger had reached zero several times before reversal.
The trader argued that sufficient credit remained in the ledger and that it had reversed the entire disputed amount through that ledger. It maintained that genuine purchases, valid invoices from registered suppliers, the suppliers’ declaration of sales and payment of tax, and certificates for invoices missing from GSTR-2A supported its claim under Section 16. It also argued that proceedings under Section 73 were quasi-judicial and that the department had established neither deliberate evasion nor wrongful availment. The department relied on the GST portal ledger entries showing repeated nil balances before the reversal, which followed the ASMT-10 notice, as evidence that the disputed credit had been used to discharge output tax liabilities.
The Tribunal decided the appeal on merits from the appeal memorandum and portal records after the trader and its representative failed to appear despite four hearing opportunities and filed no request for adjournment or extension. It applied the retrospectively amended Section 50(3), which requires both wrongful availment and utilisation. The repeated zero balances before 27 October 2025 showed that the excess credit reported in GSTR-3B had been used to offset tax. The Tribunal held that interest is compensatory, that intent to evade tax is irrelevant to its levy, and that the two decisions cited by the trader did not apply. It found no error in the first appellate order and confirmed the interest demand.
Cases Discussed
- Raj Iron & Building Materials v. Union of India, (2018) 66 NTN 323 (as cited by GSTAT), Writ Tax No. 826 of 2017, decided 22.12.2017 (Allahabad High Court). The appellant cited the decision in support of its challenge to the interest demand. The Tribunal held it inapplicable.
FULL TEXT OF THE JUDGMENT/ORDER OF GSTAT
1. Brief facts of the case
1.1 The present appeal has been filed by M/s R.S. Traders (GSTIN: 09ACQPF3001L1ZM), a proprietorship concern engaged in the business of trading in scrap materials, against Order-in-Appeal No. ZD090326215336F dated 24.03.2026 passed by the Additional Commissioner Grade-II (Appeal-IV), State Tax, Kanpur, whereby the interest demand of Rs. 2,48,600.64 under Section 50(3) of the UPGST Act, 2017, was upheld.
1.2 The dispute originated during scrutiny of returns for FY 2021–22, wherein excess availment of ITC was noticed. The Appellant voluntarily reversed/deposited the principal ITC amount of Rs. 3,51,049.36 through Form GST DRC-03 dated 27.10.2025. However, the Proper Officer, vide Order-in-Original in Form GST DRC-07 dated 29.12.2025, confirmed the interest liability on the ground that the excess ITC had been utilised. The first appeal preferred by the Appellant was dismissed, holding that the Electronic Credit Ledger had reflected a nil balance on multiple occasions prior to reversal of the disputed ITC.
1.3 No one appeared on behalf of the Appellant. Shri Rajesh Kumar Singh, Deputy Commissioner Appeared on behalf of the Respondent (“hereinafter to be referred as the Ld Respondent.”)
2. Grounds of Appeal
2.1 The Appellant has contended that, immediately upon receipt of the notice, it voluntarily reversed/deposited the entire disputed ITC amounting to Rs. 3,51,049.36 (CGST Rs. 70,155.00, SGST Rs. 70,155.00 and IGST Rs. 2,10,739.36) through Form GST DRC-03 dated 27.10.2025 and, therefore, no principal tax liability remains outstanding.
2.2 The Appellant has further submitted that sufficient balance was available in its Electronic Credit Ledger during the relevant period and that the disputed ITC was reversed through the Electronic Credit Ledger itself. Accordingly, it has disputed the levy of interest under Section 50(3) of the UPGST Act, 2017. It has also contended that the proceedings under Section 73 are quasi-judicial in nature and that no deliberate intention to evade tax or wrongful availment of ITC has been established by the Department. In support of its contention, the Appellant has relied upon the decisions in Raj Iron & Building Materials v. Union of India (2018) 66 NTN 323 and Intayaz Ahmed v. State of U.P.
2.3 The Appellant has also submitted that the ITC was availed against genuine purchases supported by valid tax invoices issued by registered suppliers, who had duly declared the corresponding sales and paid the applicable tax. It has further stated that, in cases where the relevant invoices were not reflected in GSTR-2A, statutory certificates were available in support of the transactions. On this basis, the Appellant has claimed that the conditions prescribed under Section 16 of the CGST/UPGST Act, 2017, were duly complied with and that the interest demand confirmed by the First Appellate Authority is not legally sustainable.
2.4 The Appellant has accordingly prayed for setting aside the impugned Order-in-Appeal and consequential relief as per law.
3. Respondent’s Contention
3.1 The Ld Respondent contended that the levy of interest under Section 50(3) of the UPGST Act, 2017, is statutory, mandatory and compensatory in nature, and interest becomes payable where Input Tax Credit has been wrongly availed and utilised.
3.2 The Ld. Respondent further submitted that upon examination of the Appellant’s Electronic Credit Ledger available on the GST portal, it was found that the ledger balance had reached zero on multiple occasions during the period between the wrongful availment of ITC in FY 2021–22 and before the reversal made through Form GST DRC-03 dated 27.10.2025 after issuance of the ASMT-10 to the Appellant, which establishes that the disputed ITC had actually been utilised towards discharge of output tax liabilities and the appellant is wrongly contesting the levy of interest amounting to Rs. 2,48,600.64 under Section 50(3) of the Act and the Ld Respondent supported the orders passed by the Proper Officer and the First Appellate Authority are correct and legal, therefore the present appeal is liable to be set aside.
4. Issues for determination
(i) Whether the Appellant is liable to pay statutory interest under Section 50(3) of the UPSGST Act, 2017 amounting to Rs. 2,48,600.64 on account of wrongfully availed and utilized excess Input Tax Credit for F.Y. 2021–22?
On perusal of the grounds of appeal and determination of points, the case involves the question of law. Hence the Double Bench has heard the matter.
5. Heard and perused the record.
6. Findings
6.1 The Appellant was afforded multiple opportunities of personal hearing on 30.09.2026, 08.10.2026, 22.10.2026 and 28.10.2026. However, despite due communication of the hearing notices, neither the Appellant nor its authorised representative appeared before the Tribunal on any of the aforesaid dates. Further, no application seeking adjournment or any request for extension of time was filed by the Appellant onto the GSTAT portal. Thus, despite being granted repeated opportunities to present its case, the Appellant failed to avail the same. Accordingly, considering the repeated non-appearance and the material available on record, the Tribunal proceeded to decide the appeal on merits, on the basis of the appeal memorandum, records available onto the GSTAT portal.
6.2 Statutory interest under Section 50(3) of the UPSGST Act, 2017
(a) We have examined the statutory provisions governing interest under the GST law. Section 50(3) of the UPSGST Act, 2017 (as amended retrospectively) explicitly prescribes:
“Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four per cent…”
(b) This Bench finds that the Appellant’s primary defence —that mere availability of credit balance in the ledger absolves it of interest liability—is factually completely false. The portal ledger inspection conducted by the First Appellate Authority conclusively proved that the Appellant’s Electronic Credit Ledger balance dipped to ZERO on multiple occasions prior to 27.10.2025. Thus, the excess ITC of Rs. 3,51,049.36 availed in GSTR-3B was not available in the ledger and it was actively consumed and utilized to offset tax liabilities by the appellant.
(c) Interest under Section 50 of UPGST Act, 2017 is strictly compensatory for the financial loss suffered by the Revenue due to delayed payment of tax or incorrect/ excess utilization of credit. The intent to evade tax (mens rea) is wholly irrelevant for levying interest under Section 50 of UPGST Act, 2017. The judicial precedents cited by the Appellant (Raj Iron & Building Materials v. Union of India (2018) and Intayaz Ahmed v. State of U.P.) are not applicable to the present case before this Bench.
6.3 In view of the above findings, this Bench holds that the First Appellate Authority committed no error of law or fact in upholding the Order-in-Original. The interest liability of Rs. 2,48,600.64 is legally sustainable and enforceable.
ORDER
(i) The Present appeal is hereby rejected.
(ii) The Order-in-Appeal No. ZD090326215336F dated 28.03.2026 passed by the Additional Commissioner Grade-II (Appeal-IV), State Tax, Kanpur, upholding the interest under Section 50(3) of the UPGST Act, 2017 is confirmed.
The order is pronounced in open court on 05.11.2026.
