Reflection of input tax credit in electronic credit ledger does not amount to availment or utilization of credit- Patna HC

Issue under consideration

As per section 73 of CGST Act, 2017 if it is found that an assessee has wrongly availed or utilized input tax credit then the proper officer shall issue a show cause notice to such person, demanding input tax credit so wrongly availed with interest and penalty.

Legal provision

Section 73(1) of CGST Act, 2017

Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised  for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder.

Now the issue under consideration is that, at what point of time input tax credit is said to have been availed or utilized in order to verify that whether it is correctly availed in accordance with law or is wrongly availed i.e. not in accordance with law.

There has been a perception that as soon as the input tax credit gets reflected on the credit side of the electronic credit ledger, it is said to be availed by the taxpayer.

At this point of time GST department is empowered to check whether such availment is correct or wrong.

If it is proved to be wrong availment, then recovery proceedings are initiated under section 73 of CGST Act, 2017.

Judgment on the issue under consideration

M/s Commercial Steel Engineering Corporation versus Assistant Commissioner of State Taxes (Patna High Court) dated 27/06/2019

In the above mentioned case, the Assistant Commissioner of State Taxes rejected the claim of transitional credit which was credited in the electronic credit ledger through filing of FORM GST TRAN-01 on the ground that it is not in accordance with law.

Consequently, the Commissioner issued the show cause notice under section 73 of CGST Act, 2017 to the assessee in order to raise demand of input tax credit so wrongly availed along with interest and penalty.

He contended that as soon as input tax credit gets credited in electronic credit ledger, it is said to be availed by the assessee and is liable to be proved as wrongly availed for raising demand.

However, the honorable High Court held that

  • Availment of input tax credit is said to take place when it is put to use for reducing the outward GST liability.
  • In other words, when input tax credit is utilized to discharge outward GST liability then only it is said to be availed
  • Mere reflection of input tax credit on the credit side of electronic credit ledger as per the return filed does not amount to either availment or utilization
  • Consequently, mere reflection of input tax credit in electronic credit ledger cannot be treated as an act of availment for initiating recovery proceedings under section 73 of CGST Act, 2017

Conclusion

A wrongly reflected input tax credit in electronic credit ledger on its own is not sufficient to initiate proceedings under section 73 of CGST Act, 2017

If such input tax credit is put to use to discharge outward GST liability then only it is said to be availed or utilized in order to attract the phrase “wrongly availed or utilized” of section 73 of CGST Act, 2017

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