Reversal of input tax credit in the case of non-payment of consideration -180 Days Applicability of Interest @24% – GST Council Recommendations – GST Audit – Auditor Qualified Opinion – Non-availability of the Notification for the Exemption -Taxpayers disagreement on payment of Interest – GST Annual Return for the FY 2017/18 – Annual Return Due on 30.06.2019

[CA.Narendra.Kumar Thotamsetty]

Query: ABC is a registered taxable person procured certain goods from a vendor in which he availed GST Input, but not paid the consideration to the vendor within 180 days from the date of invoice. In such case, whether tax payer need to pay interest on input is question? If not, is there any recommendation of the GST Council is exists in this regard is question? Further if there is no such notification/order is exists on account of the GST Council recommendations; is Interest is payable is still big question? What is the role of a GST auditor in this regard if there is a disagreement of a taxpayer in relation to payment of interest in-spite of the Hon’ble High Court of Telangana comments on GST Council Recommendations in the case of M/s  Megha Engineering & Infrastructures Ltd Vs CCT & Others - 2019 (4) TMI 1319 - TELANGANA AND ANDHRA PRADESH HIGH COURT, Dated 18-4-2019 is question? 

Answer: As per the provisions of the GST Act read with Rules, though GST is a MODVAT Mechanism, the taxpayer continue to hold GST input subject to certain conditions, in which one of the condition that the taxpayer need to discharge payment to the his vendor within 180 days from the date of the invoice. If there is a failure of payment of invoice on the recipient part irrespective of his contractual obligations with the vendor; then as per the Sec 16(2) of the CGST Act read with 37 of the CGST Rules, the taxpayer (i.e. recipient in the given case) need to reverse such input to the extent of such non-payment of invoices along with interest in his output liability without fail.

In this regard after getting representations of the Trade, The GST Council relaxed payment of interest in his 28^th council meeting and issued a press note as below dated 21^st July 2018 vide serial No 10:

“In case the recipient fails to pay the due amount to the supplier within 180 days from the date of issue of invoice, the input tax credit availed by the recipient will be reversed, but liability to pay interest is being done away with”

However in-spite of the above recommendation of the GST Council and its press note, the Notification/order for the exemption of payment of interest is still due under the respective GST Act’s till the date.

Considering the Comments of the  Hon’ble High Court of Telangana in the Case of M/s  Megha Engineering & Infrastructures Ltd Vs CCT & Others - 2019 (4) TMI 1319 - TELANGANA AND ANDHRA PRADESH HIGH COURT, Dated 18-4-2019 in relation to GST Council Recommendations, where Court  held that the recommendations of the GST Council are still on paper, hence declined to interpret the proposed amendment of the GST Council recommendations on GST Act and upheld the demand of interest on Gross liability by ignoring the net tax liability, though  we are in view of that

• The GST Act is a MODVAT Mechanism, where the taxpayer discharging tax on value addition by availing GST input; in which the Government already recovered such tax from the supplier point.
• GST Technical glitches on the GST Common Portal
• Non-availability of the GST Returns for inward supplies in Form GSTR-2 and Final Return in Form GSTR-3
• Availability of the Temporary Returns in Form GSTR-3B
• Non-availability of NEFT  facilities by Banks on account  of Public Holidays, in which the taxpayer bound to file the returns,  if the due date of the filing of return falls on Sunday or any other public holidays
• The difference between “filed” and “submitted” with reference to Form GSTR-3B in relation to offset of the GST liability with Cash and GST Input
• Minor Procedural laps on the taxpayer’s part and availability of the GST input.

Hence considering the above view of the Hon’ble High Court and non-availability of the exemption notification or order in this regard, the taxpayer need to reverse such GST input along with the applicable interest @ 24%, since the taxpayer didn’t discharge payment within 180days from the date of invoice.

If there is a disagreement of the taxpayer with the GST auditor in relation to the interest payment, then the auditor is bound to qualify his opinion   to such extent with no option.

Hence considering the due date of the GST Annual Return for the Financial year 2017/18 as 30.06.2019, its highly advisable to the Government to issue such notification/order at the earliest, since it saves the taxpayer as well as the auditors role with reference to the Compliance of the GST Act to such extent.

Further one may consider this info only for the education purpose and requested them to proceed with further detailed analysis, since as on date (i.e.; 25.04.2019) we are in impression that there is no such notification/order is exist  as per our personal view.

Source – GST Council Recommendations–28^th meeting of the GST Council – Press Note on GST Law Amendments- Dated –July 21^th 2018.

Best Regards,

CA Narendra Kumar Thotamsetty,

Hand Phone: +91-99163-22238

Hyderabad.

Discussions to this article

[SURAJ PANDEY]

Dear Mr. Narendra,

I would like to ask folowing two questions on this knowledge full article that

1. what about in the case when a recipient who claimed ITC but reversed it before completion of 180 days on his own. Will he require to pay interest even reversal made before such deadline.

2. Even if in worst scenario, which rate of interest is applicable 18% or 24% if recipient reverse ITC before 180 days.

In my opinion if a taxpayer pay/reverse on his own before 180 days then Section 50 (1) shall apply & 18% interest is payable.

I also believe after reading the 16(2) of CGST Act the interest liability can only arise when taxpayer reverse ITC only after 180 days if he revese before 180 days then interest should not pay.

Regards,

SANTOSH SHARMA

[Venkat Subramaniam]

n this regard after getting representations of the Trade, The GST Council relaxed payment of interest in his 28^th council meeting and issued a press note as below dated 21^st July 2018 vide serial No 10:

“In case the recipient fails to pay the due amount to the supplier within 180 days from the date of issue of invoice, the input tax credit availed by the recipient will be reversed, but liability to pay interest is being done away with”

Kindly note that the above was decision was reversed in the subsequent council meeting

[KASTURI SETHI]

Sh.Suraj Pandey Ji,

I agree with you to the extent that interest applicable is 18% if paid on his own from the date of failure of payment of tax even before the expiry of 180 days.

And interest rate is applicable @24 % if paid on detection by the department. It is from the date of availing undue credit.

No freedom of interest for 180 days under Section 16 (2) of CGST Act. It cannot read in isolation. No assessee can be allowed to be enriched unjustifiably.

[CA.Narendra.Kumar Thotamsetty]

Dear Mr Santosh Sharma,

Please refere Sec 50(3) of the CGST Act, The applicable of interest will be available on irregular availment of Credit and in such the interest rate is 24%. Further if such GST Credit is reversed before 180 days though its reflected in Form GSTR 2A, then in such case as per our view interest is not applicable, since such provision is exist under the service tax regime also.

[Rajender Gupta]

WHILE CONDUCTING THE GST AUDIT WE CAME TO KNOW THAT THE ASSESSEE HAS NOT PAID CERTAIN BILLS FOR MORE THAN 180 DAYS ON WHICH HE HAS TAKEN INPUT TAX CREDIT (ITC). AS PER SECOND PROVISO TO SEC 16(2) PROVIDES THAT ITC AVAILED TO THE EXTENT OF AMOUNT NOT PAID SHALL BE ADDED TO THE OUTPUT TAX LIABILITY OF THE RECEIPIENT ALONGWITH INTEREST IN THE MANNER PRESCRIBED RULE 37 PRESCRIBE THE MANNER

MY QUESTION IS THAT

1. WHAT IS THE TREATMENT IN GST AUDIT REPORT AS THE ASSESSEE HAS NEITHER REVERSED ITC NOR PAID THE SAME.

 

2. WHETHER WE HAVE TO ASK TO THE ASSESSEE TO REVERSE THE ITC AND DEPOSIT THE SAME THROUGH DRC 03. IF THE ASSESSEE DO NOT REVERSE THE ITC AND DO NOT DEPSOIT THE SAME WHAT WILL BE THE TREATMENT.

 

3. WE HAVE ASKED THE ASSESSEE TO REVERSE THE ITC BUT HE DID NOT REVERSE THE ITC BUT DEPSOIT THE INTEREST OF THE INTERVEING PERIOD I.E

1. FROM THE DATE OF AVAILMENT OF ITC CREDIT TO THE DATE OF PAYMENT OR
2. FROM THE DATE OF AVAILMENT OF ITC CREDIT TO THE DATE OF FILING THE ANNUAL RETURN OR
3. FROM THE DATE OF AVAILMENT OF ITC CREDIT TO THE DATE OF AUDIT WHERE WE HAVE POINTED OUT THE DISCREPENCIES.

 

4. WHAT WILL BE THE RATE OF INTEREST TO BE CHARGED FOR THIS WHETHER IT SHOULD BE 18% OR 24%

 

5. WHAT WILL BE THE PERIOD FOR CHARGING INTEREST I.E WHETHER INTEREST TO BE CALCULATED ON DAY BASIS OR ON PART OF THE MONTH (MEANS FOR EACH COMPLETED MONTH)

 

6. WHETHER IF WE GET ITC REVERSED IN THE CURRENT DATE THE ITC SO REVERSED WILL BE AVAILABLE TO THE ASSESSEE IN THE CURRENT FINANCIAL YEAR.