Interest on ITC untilised Balance in ECRL, Goods and Services Tax - GST

[Pankaj Agarwal]

Facts:

1. A & Co P Ltd has maintained the credit balance as under:

SGST: Rs.150,75,000/- which was maintained since July 2019 to December 2022 (January 2023 onwards the SGST balance is at Rs.510,000/-)

2. There was a ITC disallowance (in SCN) of IGST Rs.1500,000/- for the month of November 2020.

3. The payment of IGST Rs.15lakh is made on 05/02/2023 through Form GST DRC-03

My Query:

Whether interest on disallowance of IGST ITC on Rs.15 lakh from November 2020 till 04/02/2023 will be applicable or not?

Regards

Posts / Replies

[Alkesh Jani]

Shri

Please refer Sl.No.06, 07 and 08 of Circular No.172/2022 dated 6th July, 2022. Also refer Sl.No.07 column No. 10 of DRC-03.

Thanks

[Alkesh Jani]

Dear All,

Please ignore the above reply, it was by posted by mistake.

Thanks

[Alkesh Jani]

Shri

In this regards, I am of the view that interest is payable, as there is utilization of credit.

Thanks

[KASTURI SETHI]

What is the status of the SCN ? Whether adjudicated ?

[V Rajalakshmi]

I am of the view that interest is payable from November until the date of payment.

[Amit Agrawal]

In my view, against ITC under the head 'IGST' of Rs. 15,00,000/- reversed on 05.02.2023, there will not be any interest liability u/s 50 (3) for the period from November, 2020 till December, 2022 because there was constant balance of ITC under the head 'SGST' exceeding Rs. 15,00,000/- between these two period.

When balance ITC under the head 'SGST' got reduced to Rs. 5,10,000/-, interest u/s 50 (3) will be payable on Rs. 9,90,000/- (i.e. Rs. 15,00,000/- Less Rs. 5,10,000/-) from date of utilisation of such ITC till 05.02.2023 (i.e. date of ITC reversal / payment of Rs. 15,00,000/-).

Such interest needs to be @ 24% p.a., but, calculated on 'per day' basis.

P.S. I have not understood how ITC balance got suddenly reduced on 01.01.2023 (as returns are generally filed on or around 20th of every month, where such balance could have been utilised for paying regular output taxes).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Shilpi Jain]

No interest upto December 2022 since ITC balance maintained, irrespective of the head under which such balance exists. The balance under sgst would have been accumulated due to the manner of utilisation of credit on the portal or for any other reason.

Doesn't matter.

Interst would be @18%

[Amit Agrawal]

Yes, interest is @ 18% p.a., calculated on per day basis.

[vijay kumar]

A different view is also possible.

The provisions of ITC under CGST Act are mutatis mutandis applicable to IGST Act.. Both are different Acts and compliance under one Act does not automatically result in compliance under the other.. Utilization of ITC attracts interest. In the instant case, the assessee availed and utilized IGST and it was the IGST ITC which was held ineligible. The IGST balance was not maintained. Hence interest u/s 50(3) of the CGST Act r/w Sn.20 of the IGST Act would apply from the date of utilization till the date of reversal.. It is also pertinent to note that in the E.Cr. Ledger, credit balances in 3 different heads are maintained separately and not together.

Another point to be noted is that if law permits utilization of SGST for payment of IGST, the TP could have paid the amount from SGST balance.. but still the issue is that it was the IGST credit which was wrongly availed and already utilized..

[Amit Agrawal]

While different interpretation is always possible specifically when law is so new, there is not even tribunal established & working as yet and evolving legal jurisprudence of gst provisions / rules are still at its nascent stage.

[Amit Agrawal]

W.r.t. the argument that 'Both are different Acts and compliance under one Act does not automatically result in compliance under the other', following questions arises on broader level of discussion (i.e. ignoring limited subject matter is of ITC under the head 'IGST' but taking case of ITC wrongly availed under any of 3 heads):

A. Whether TP had wrongly "availed" ITC under IGST Act, CGST Act or SGST Act, 2017? And what is legal basis / criteria of such determination?

B. Whether TP had wrongly "utilised" ITC under IGST Act, CGST Act or SGST Act, 2017? And what is legal basis / criteria of such determination?

C. Is it legally possible that TP had wrongly "availed" ITC under one Act, but wrongly "utilised" it under different Act? And if yes, how SCN should be issued?

And so on .....

Please note that I have not shared any legal views as such in this post, but tried to explain that there are so many areas of conflicting possibilities, further complicated from the fact that the evolving legal jurisprudence of gst provisions / rules are still at their nascent stage.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

 Now, coming back to my earlier post at Serial no. 6 above. Please note the followings:

1. Revised Section 50 (3) of the CGST Act, 2017 (amended retrospectively w.e.f. 01.07.2017) reads as follows:

"Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four per cent. as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed."

2. sub-rule (3) of Rule 88 B reads as follows:

"In case, where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with sub-section (3) of section 50, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub-section (3) of section 50.

Explanation. -For the purposes of this sub-rule, -

(1) input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.

(2) the date of utilisation of such input tax credit shall be taken to be, -

(a) the date, on which the return is due to be furnished under section 39 or the actual date of filing of the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or

(b) the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other cases."

3. “input tax credit” means the credit of input tax, as per Section 2 (63) of the CGST Act, 2017.

4. Relevant portion of Section 2 (62) of the CGST Act, 2017 reads as follows:

"“input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes– ................. ........................"

5. Your attention is also invited to Section 49 (2) read with Section 41, 2 (46) of the CGST Act, 2017 & Rule 86 of the CGST Rules, 2017 .

6. There are some rules (For example: Rule 44 (2)) which requires "separate" calculations for input tax credit of central tax, State tax, Union territory tax and integrated tax, but Rule 88B (3) does not put any such conditions.

7. In view of above read with fact of your case, I had shared my ex-facie views in post at serial no. 6 above.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Padmanathan Kollengode]

I concur with the views of Ld. Amit ji and Shilpi Ma'am. Rule 88B speaks about 'utilization'. Since CGST credit can be set off against IGST, interest to be calculated when the balance in CGST falls below the wrongly availed credit.

In the absence of any circular/ clarification in this regard, the Department may not agree with this stand and one has to be prepared for litigation.

[Amit Agrawal]

In continuation to subject matter under discussion here & my views shared above, please note the following recommendations of 50th meeting of GST Council, as per press release dated 11.07.2023:

"8. Issuance of the following circulars in order to remove ambiguity and legal disputes on various issues, thus benefiting taxpayers at large:

1. .......................
2. Clarification regarding the manner of calculation of interest amount liable to be paid under section 50(3) of CGST Act, 2017 in respect of wrongly availed and utilized IGST credit, clarifying inter alia that in cases of wrong availment of IGST credit, the balance of input tax credit (ITC) in electronic credit ledger, under the heads of IGST, CGST and SGST taken together, has to be taken in consideration while calculating such interest liability as per rule 88B of CGST Rules, 2017.

Note (as given at the end of above-said Press Release): The recommendations of the GST Council have been presented in this release containing major item of decisions in simple language for information of the stakeholders. The same would be given effect through the relevant circulars/ notifications/ law amendments which alone shall have the force of law."

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.