Section 50(3) Interest Turns on Whether Ledger Fell Below Wrong ITC: GSTAT Lucknow

In two cases, the Lucknow Bench of the GST Appellate Tribunal upheld interest where the credit ledger had hit zero, and deleted it where the balance always exceeded the reversed credit.

GSTAT Lucknow has held that interest under Section 50(3) of the CGST Act on wrongly availed input tax credit (ITC) arises only if the credit was also utilised, tested by whether the Electronic Credit Ledger balance fell below the wrongly availed amount before reversal. [R.S. Traders v. Commissioner State Goods and Services Tax Department, 2026-juristway.com-3306-GSTAT(Lucknow)-GST; Sri Ram Traders v. Prakhar Pratap Singh, State Tax Officer, Barabanki & Ors., 2026-juristway.com-3309-GSTAT(Lucknow)-GST]

Narendra Kumar, Member (Judicial), and Alok Chopra, Member (Technical), decided both appeals.

R.S. Traders. A scrap trader reversed excess ITC of ₹3,51,049.36 for 2021-22 through Form GST DRC‑03 on 27 Oct 2025, after a scrutiny notice, but was held liable to interest of ₹2,48,600.64. It argued that sufficient balance was always available and that no intent to evade had been shown. No one appeared for it on four hearing dates, and the Bench decided the appeal on the record.

The first appellate authority’s inspection of the portal showed that the ledger balance had fallen to zero several times before the reversal, so the Bench held that the ITC had been consumed in paying output tax. It held that interest under Section 50 is compensatory and that intent to evade has no bearing on it, and dismissed the appeal.

Sri Ram Traders. The appellant reversed excess ITC of ₹2,30,206 for 2020-21 through DRC‑03 on 21 Oct 2024, before the show cause notice. The first appellate authority deleted the main tax demand but sustained interest of ₹1,65,748 and a penalty of ₹23,620. At the Bench’s direction, the Department produced a report of the State Tax Officer showing the CGST and SGST balances always above the reversed amount, and its representative accepted that interest would not then arise.

Reading the words ‘wrongly availed and utilised’ in Section 50(3) with Rule 88B(3) and Circular No. 192/04/2023-GST, the Bench held that utilisation is an additional condition and that credit is not utilised while the aggregate balance stays above it. It set aside the interest, and the penalty as well, since the tax demand had gone and no independent basis for the penalty was shown.

2026-juristway.com-3306-GSTAT(Lucknow)-GST | 2026-juristway.com-3309-GSTAT(Lucknow)-GST