GST ITC CREDIT REVERSL - INTEREST RATE % GUIDANCE, Goods and Services Tax - GST

[venkataraman swaminathan]

Dear Sir

We availed GST ITC Credit in JAN 20 .

One of our vendor's GST no found as canceled status in Portal and we noticed this now and we discussed with vendor and he agreed to give back the GST charged in his invoice by cheque & we need to reverse this ITC in our books and also to be reported in GSTR-3B return as reversal of ITC credit along with Interst in May 2020 GSTR-3B in June20 . For this type of reversal of ITC credit at what rate interest to be calculated and from which date . Need Guidance please.

thanks

v Swaminathan

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

Under Section 50 (3) of CGST Act, 2017 "a taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.

Vide Sl. No. 2 of Notification No. 13/2017 – Central Tax dated 28.06.2017 the rate of interest for any amount payable under Section 50 (3) of CGST Act, 2017 is 24%.

[YAGAY andSUN]

Section 50 of the Act read with notification 13/2017 CGST dated 28.06.2017

In terms of section 50(1) of the Act, where a person is liable to pay tax fails to pay the tax or any part within the period prescribed, interest payable at the rate of 18%.

When recipient has made an excess or undue claim of ITC as per section 42(10) of the Act, rate of interest applicable will be 24%.

[Alkesh Jani]

Sir,

In your case, the interest is to be calculated from date of filing of GSTR-3B for the month of Jan-20 or 20th Feb-20 whichever is earlier.

Thanks

[KASTURI SETHI]

Interest is always compensatory in nature. If you have not utilised that amount of ITC, no interest is payable. As per Section 155 of CGST Act, the burden of proof is cast upon the person who avails credit. So you are to prove that you have not utilised that credit.

[Alkesh Jani]

Dear Experts,

In the instant case, it seems that there is contravention of provisions of Section 16 as the supplier have not filed the returns not paid the tax to the government. Moreover, Section 73 and 74 states that “(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilized for any reason….”

Therefore I am of the view that once ITC availed and was not reversed for the tax period interest is applicable.

Of course it is not free from litigation, if not paid.

Thanks

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

That is O.K. Section 50(3) read with Section 42(10) and Section 43(10) talks of 'reduction in output tax liability'.

Pl go through all Sections and sub-sections conjointly and I solicit your views on 'reduction of output tax liability and how it is integrated (not linked) with recovery of interest on this very issue. Thanks.

[Alkesh Jani]

Shri Kasturiji,

Section 42 and Section 43 is with regards to Matching, reversal and reclaim of ITC and of output tax liability, in simple language, GSTR-2, which is kept in abeyance and GSTR-2A is only to view and recipient cannot upload the missing invoices. Therefore, the above section cannot be invoked at present. Adding to output tax liability is after making communications and if any wrongly availed or utilized ITC which results into short payment of tax will be added to output tax liability.

With due regards

[CA HemanthKumar]

Dear Sir,

In my view, rate of interest for ITC reversal will be 18%.

Interest rate of 24% would not be applicable in all cases and would be restricted only to those cases where the unmatched credit is again availed back by the recipient, before the supplier has shown such supply in his valid return within the prescribed time limit as per section 42(10) and 43(10). As of now the concept of matching has been deferred, applicability of interest @ 24% will not be applicable.

Rajagopalan Ranganathan sir, YAGAY andSUN , KASTURI SETHI Sir can you please confirm your final views as some departments officers are using this discussion (due to non availability of clarifications/circulars etc) and saying interest will be 24%.

Regards

CA Hemanth Kumar

[Rajagopalan Ranganathan]

Sir,

As per sl. No. 2 of Notification No. 13/2017 – Central Tax dated 28.6.2017 as amended any amount payable under Section 50 (3) of CGST Act, 2017 the rate of interest is 24%. Section 50 (3) talks about "a taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.".. However, Section 42 (10) and 43 (10) are not yet operational due technical glitches in GSTN Portal. The Department will insist on paying interest @ 24% as per the notification though compliance of Section 42 (10) and 43 (10) is not possible at present. However physical verification of records by Departmental officers reveals that excess credit is availed they will insist reversal of such credit with interest. However interest is not payable if the excess credit availed is reversed within the same month in which it is taken.