GST Interest & Penalty Not Applicable on Reversed ITC Never Availed or Utilised from Date of Claim of ITC in ECRL: Madras HC [Read Order]
Since the ITC was reversed and remained unutilised in the Electronic Credit Ledger from the date of its claim, it cannot be considered as availed or utilised.
![GST Interest & Penalty Not Applicable on Reversed ITC Never Availed or Utilised from Date of Claim of ITC in ECRL: Madras HC [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/04/REVERSED-ITC-GST-Interest-Penalty-TAXSCAN.jpg "GST Interest & Penalty Not Applicable on Reversed ITC Never Availed or Utilised from Date of Claim of ITC in ECRL: Madras HC [Read Order]")
The Madras High Court, in its recent ruling, favoured in favour of petitioner, ruling that the interest and penalty should not be imposed on the reversed input tax credit ( ITC ) under GST (Goods and Services Tax) that never availed or utilised from the date of claim of ITC in Electronic Credit Ledger (ECRL). The petitioner, Fairmacs Shipstores Private Limited filed the petition against...
The Madras High Court, in its recent ruling, favoured in favour of petitioner, ruling that the interest and penalty should not be imposed on the reversed input tax credit ( ITC ) under GST (Goods and Services Tax) that never availed or utilised from the date of claim of ITC in Electronic Credit Ledger (ECRL).
The petitioner, Fairmacs Shipstores Private Limited filed the petition against the orders passed by the GST authorities on 14.09.2023 directing the petitioner to pay ₹33,320 as interest and ₹3,86,094 as penalty, totalling ₹4,19,414.
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The petitioner received a notice in Form ASMT-10 dated 17.06.2023 and submitted a reply in Form ASMT-11 on 20.06.2023, admitting the credit and reversing the same while clarifying that the credit had not been utilised. Despite this, a notice in Form DRC-01A was issued on 20.07.2023, followed by a show cause notice in Form DRC-01 on 02.08.2023. The petitioner submitted a response on 30.08.2023. Consequently, the impugned final order was passed.
The petitioner’s counsel, Ms. S. Gayathri, argued that the staff handling GST compliance had failed to inform the higher officials about the impugned order, resulting in a delay of 94 days in filing the appeal. She further contended that since the ITC was reversed and remained unutilised in the Electronic Credit Ledger from the date of its claim, it cannot be considered as availed or utilised. Therefore, the imposition of interest and penalty was unwarranted.
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In addition, a judgment dated 11.06.2024 in W.P.(MD) No.26254 of 2022 was placed by the counsel, where the Court held that if ITC was neither availed nor utilised, no penalty could be imposed. Although a token penalty of ₹10,000 was imposed in that case due to the possibility of wrong utilisation, the Court had observed that Section 74 of the CGST Act applies only in cases involving fraud, willful misstatement, or suppression of facts.
The Government Advocate, Ms. Amirthapoonkodi Dinakaran, defended the impugned order, stating that it was well-reasoned and required no interference.
After considering the submissions and examining the records, the Court took note of similar views taken in earlier cases, including Kumaran Filaments (P) Ltd. v. Commissioner of Central GST and Central Excise, Madurai, 2021, and Commercial Steel Engineering Corporation v. State of Bihar, 2020. The court found merit in the claim of the petitioner.
The bench of Justice Krishnan Ramamsamy set aside the impugned order dated 14.09.2023 and remitted the matter back to the second respondent for fresh consideration. The court directed that the matter be re-examined on its merits and in accordance with the law, after affording the petitioner an opportunity of being heard.
To Read the full text of the Order CLICK HERE
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