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Interest on Credit ‘availed’ but ‘not utilised’ - Resurrection of Conflict – ‘Or’ vs ‘And’
Introduction:
Whether interest is payable or not on the amount of tax credit that was wrongly availed but reversed without utilising the same is always a bone of contention between taxpayer and Revenue under Indirect Tax laws. Under the erstwhile CENVAT Credit Rules, 2004, Rule 14 as prevailing prior to 01.04.2012 provided for recovery of CENVAT Credit that has been taken or utilized wrongly or has been erroneously refunded. The said issue was originated from the use of the phrase “CENVAT Credit has been taken or utilized wrongly” in Rule 14.
The said Rule 14 was amended with effect from 01.04.2012 to provide for recovery of CENVAT Credit that has been wrongly taken and utilised or has been erroneously refunded. The above-mentioned phrase has been suitably amended as “CENVAT Credit has been wrongly taken and utilized” to put an end to this controversy. However, the amendment was not expressly notified to be retrospective. This has made the issue wide open and the litigation is continuing for more than a decade with respect to interest demanded for the periods prior to 01.04.2012. The matter is now pending before the Supreme Court under the second round of litigation.
Coming to Good & Service Tax (GST) regime, Sections 73(1) and 74(1)[1] of the Central Goods & Services Tax Act, 2017 (CGST Act) provides for recovery of input tax credit that was wrongly availed or utilised. The use of the phrase ‘wrongly availed or utilised’ marks invocation of same issue and litigation under GST regime as well. Notices are also issued by the Department to recover interest amounts in cases where credit was wrongly availed but reversed before utilisation. With the above backdrop, we will now analyse the issue based on jurisprudence evolved as on date under the erstwhile CENVAT Credit Rules, 2004 and under GST laws as well.
