Interest Under Section 50 GST Payable Only on Cash Component, Not on ITC – Orissa High Court

The petitioner, M/s Utkal Automobiles Pvt. Ltd., filed its GST returns belatedly and discharged interest liability under Section 50 of the CGST Act by calculating interest on its net GST liability, after adjusting Input Tax Credit (ITC) available in the Electronic Credit Ledger.

Despite this, the department issued a Demand Information Notice levying interest on the gross GST liability, without allowing adjustment of ITC. Aggrieved by such levy, the petitioner approached the Orissa High Court invoking its writ jurisdiction.

The High Court examined the proviso to Section 50(1) of the CGST Act and took note of its substitution by the Finance Act, 2021, which clarified that interest is payable only on that portion of tax which is paid by debiting the Electronic Cash Ledger. The Court further noted that the amendment was given retrospective effect from 01.07.2017, thereby clarifying the legislative intent beyond doubt.

Relying on the amended statutory provision and its earlier decisions on the same issue, the Court held that the levy of interest on the ITC portion of tax liability was unsustainable in law. Consequently, the impugned demand notice was set aside and the matter was remanded to the department for reconsideration in accordance with the amended provisions.

GST authorities cannot demand interest on the ITC portion of tax liability for delayed filing of returns. Interest is compensatory in nature and is chargeable only where tax remains unpaid in cash. Any interest demand raised on gross GST liability, ignoring available ITC, is liable to be challenged.

The writ petition was allowed. The Demand Information Notice levying interest on gross GST liability was quashed, and the matter was remanded to the assessing authority for fresh consideration in light of the retrospective amendment introduced by the Finance Act, 2021.
For complete facts, reasoning, and directions, refer to the uploaded judgment PDF.