The Madras High Court upheld penalty and late fee on a trader who wrongly availed input tax credit, but sent back the interest demand because the credit was reversed without being used.
The Madras High Court has held that interest is not leviable on ineligible input tax credit (ITC) that was availed but reversed without being utilised, while upholding the penalty and late fee imposed for the wrong availment [S. Nasar v. Appellate Deputy Commissioner (State Tax) (GST Appeal) & Ors., 2026-juristway.com-3412-HC(Madras)-GST].
Justice Senthilkumar Ramamoorthy heard the writ petition against an order dated 16 Dec 2025 imposing interest and penalty for excess availment of ITC. The petitioner said the credit was availed inadvertently and reversed on realising the mistake, while it was still lying unused in the electronic credit ledger, so neither interest nor penalty should follow.
The State argued that the petitioner had admitted availing ineligible ITC and was liable to pay penalty and late fee.
The Court held that availing ineligible ITC justifies a penalty. The penalty appeared to have been imposed under Section 73, but even if it had been imposed under Section 122, there was no material difference, as only ₹10,000 each had been imposed under the Central and State enactments. The late fee for belated filing of the return was also in order.
On interest, the Court accepted that it “would not be leviable unless the petitioner utilised the Input Tax Credit”, and held that its imposition warranted reconsideration.
Subject to the petitioner paying the penalty and late fee within 30 days of receiving the order, the order was set aside only as to interest. The matter was remanded for a fresh order on interest, after a reasonable opportunity, within five months of payment.
2026-juristway.com-3412-HC(Madras)-GST
