The main legal point established in the judgment is the emphasis on the availability of appeal under Section 107 of the CGST Act as the appropriate remedy to address issues related to the applicability of interest and penalty under the Act.

ORDER :

1. The present writ petition came to be filed, seeking the following relief:

“to declare the impugned interest and penalty order passed by the first respondent in Form DRC-07, dated 18.12.2021, imposing interest under Section 50 along with penalty under Section 122(2) of the Central Goods and Service Tax Act, 2017 [for short “CGST Act”] for the tax period 2017-18 to 2019-20, as illegal, improper and incorrect.”

2. The averments made in the affidavit filed in support of the writ petition, are as under:

(a) The petitioner is a registered dealer, intended with GST and is on the rolls of first respondent doing business in MDF Boards and Writing Slates. The first respondent conducted inspection on the business premises of the petitioner on 04.11.2020 and thereafter issued Show Cause notice dated 06.08.2021, proposing to restrict ITC for the tax period 2019-20 at Rs.9,41,624/- [as against Rs.18,82,220/-]. On receipt of Show Cause notice, the petitioner paid the amount as demanded in Show Cause notice of Rs.10,78,074/- by reversing the ITC claim as it has not utilized the ITC and the same is lying to its credit in the Electronic Credit Ledger.

(b) It is the case of the petitioner that as Input Tax Credit claim was not utilized and was lying in the Electronic Ledger, it has reversed the same and there was no ‘net cash liability’ on the petitioner. Hence, all proceedings pursuant to the Show Cause notice shall be deemed to have been closed.

(c) However, the first respondent issued Show Cause notice dated 06.10.2021, stating that the petitioner has paid only the Tax and not interest under Section 50 of the GST Act, and as such, the petitioner has to pay interest, and penalty under Section 122(2) of GST Act. Objections to the said Show Cause notice came to be submitted vide letter dated 29.11.2021, stating that as per the instructions of the Audit Officer, the petitioner has reversed the ITC and discharged liability through DRC-03. According to him, payment of interest would arise if it has utilized the credit and as long as the credit is not utilized, payment of interest does not arise. The impugned order came to be passed rejecting the objections of the petitioner, which lead to filing of the present writ petition.

3. Sri G. Narendra Chetty, learned counsel for the petitioner mainly submits that Section 50 of the CGST Act, 2017, which was amended with retrospective effect, came into effect from 01.07.2017. Therefore, the interest on the same is chargeable only on ‘net tax liability’ i.e. if any tax is payable/paid after adjusting the Input Tax Credit available to the dealer. He relied upon various judgments of different High Courts in support of his case. He also relies to a Common Order passed by this Court on 02.03.2022 in W.P. Nos. 8734 and 8768 of 2020, wherein it was held that in view of the amended Section 50 of CGST Act, 2017 with retrospective effect, interest is liable only on ‘net tax liability’ and not on the ‘gross tax liability’. He further submits that the ITC claim was lying in Electronic Credit Ledger of the petitioner and since it was not utilized, he got it reversed pursuant to the same being pointed out by the first respondent in the Audit. Hence, pleads that the order passed under challenge requires interference.

4. On the other hand, Sri Y.N. Vivekananda, learned Government Pleader for respondent nos. 1 and 2, would submit that since the order is appealable under Section 107 of CGST Act, 2017, entertaining a writ petition by the High Court may not be proper. In other words, he would submit that the petitioner ought to have availed the efficacious, alternative remedy, available under the Act. He relies upon the judgment of Assistant Commissioner (CT) LTU, Kakinada and Others vs. M/s. Glaxo Smith Kline Consumer Health Care Limited, (2020) 19 SCC 681 in support of the same.

5. A perusal of Section 50 of CGST Act, 2017 shows that there was an amendment to Section 50 of the CGST Act, which came into effect from 01.06.202