ITC Availed & Utilized on Supply from Non-Existent Firms

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Vivaan (Querist)

22 February 2025 Query: ITC Availed & Utilized on Supply from Non-Existent Firms
We had availed and utilized Input Tax Credit (ITC) on supplies made by non-existent firms. Before the issuance of the Show Cause Notice (SCN) under Section 74 of the Act, we voluntarily paid the full tax liability, partial interest, and a penalty at the rate of 15%. Subsequently, the SCN was issued, to which we duly furnished our reply.
Following this, a DRC-07 order has been issued, demanding interest under Section 50 and imposing a penalty equal to 100% of the tax amount. However, if the penalty is paid within 30 days of receiving the order, it is reduced to 50% of the tax amount.
Our queries are as follows:
1. Penalty Liability: Since we had already made a voluntary payment of penalty at 15% before the issuance of the SCN, are we still liable to pay an additional penalty of 50% of the tax amount as per the DRC-07 order? Or is our earlier payment sufficient to discharge the penalty liability?
2. Interest Calculation under Section 50:
o The transactions in question took place in May 2018, and the corresponding GSTR-3B was filed on July 20, 2018.
o The full tax liability was settled on September 15, 2021, through DRC-03.
o In this scenario, should the pending interest under Section 50 be calculated from July 20, 2018, to September 15, 2021 (i.e., until the date of tax payment)?
o Or will interest continue to accrue until the present date?
Kindly provide clarification on the above aspects.

ASHWANI DHANUKA

ASHWANI DHANUKA (Expert)

22 February 2025 As per section 74, if a taxpayer pays the tax, with interest and 15% penalty before issuance of notice, then, SCN can be issued only if the officer is of the opine that the amount is short paid. So, the question that whether SCN issued is valid or not arises? That need careful reading of grounds and allegation in notice.
Now, int part.-- int would be from 20july 18 to 15th sep21
I would suggest you to file appeal

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