Interest and panelty on reversal of ITC, Goods and Services Tax - GST

[mk Jain]

If I have balance in E Cash ledger and at the time of audit found that taken some wrong ITC then any interest or panelty liablity on reversal inder Section 73, 74 or 50.

M Kumar

Posts / Replies

[Lav Prajapati]

Yes, sir

you are liable to pay interest on wrongly availed and utilisation of ITC as per Section 50(1) read with Rule 88B(3)

In case, interest is payable 18% on the amount of input tax credit wrongly availed and utilised.

• Amount on which interest liability to be computed
  • the interest shall be calculated on the amount of input tax credit wrongly availed and utilised,
• Period for which interest is payable
  • 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 section 50(3). [ Rule 88B(3) ]

[KASTURI SETHI]

(1) If you have utilised the credit irregularly, reverse the credit and pay interest on your own i.e. without any notice from the department. Thus you can save penalty. Read Section 73 (5) and (6) of CGST Act. Having sufficient balance in cash ledger will not save you from interest.

(2) In case you had sufficient balance in Electronic Credit Ledger i.e. not below the amount of credit availed and utilised on any day during the period of dispute, then you can save interest and penalty both. Having sufficient balance in Credit Ledger means ITC was not utilised.

Read Explanation (1) to Rule 88 B(3) which is extracted below :-

(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.

(3) Also go through this :

(i) If ITC is reversed on your own (without any written letter or notice or summons from the audit or any wing of the department), the benefit of 'interest only on net cash liability' is available, otherwise not.

(ii) If ITC is reversed after commencement of any proceedings under Section 73 or Section 74 of CGST Act, no benefit of 'interest only on net cash liability' is available. In other words, interest on gross liability is payable.

(iii) 'Any proceedings' includes investigation proceedings also. If summon is issued under Section 70 or search is conducted under Section 67, it is the commencement of proceedings.

(iv) If recovery/reversal of ITC availed and utilised is initiated under Section 73 or Section 74, the assessee falls in the exclusion clause as he has evaded tax and caused loss to the revenue. In that situation, interest has to be paid on the amount of ITC availed and utilised irregularly, notwithstanding having sufficient balance lying in both Electronic Credit Ledger and Electronic Cash Ledger.

(v) The facility of payment of interest only on the net cash liability is not meant for those registered persons who pay due tax after commencement of any proceedings under Section 73 or 74 and not on their own.

Read all the above conjointly.

 

[GUNASEKARAN K]

Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts Sec 73 of the CGST Act 2017

(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 utilised for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder.

(2) The proper officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order.

(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.

(4) The service of such statement shall be deemed to be service of notice on such person under sub-section (1), subject to the condition that the grounds relied upon for such tax periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice.

(5) The person chargeable with tax may, before service of notice under sub-section (1) or, as the case may be, the statement under sub-section (3), pay the amount of tax along with interest payable thereon under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.

(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1) or, as the case may be, the statement under sub-section (3), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.

(8) Where any person chargeable with tax under sub-section (1) or sub-section (3) pays the said tax along with interest payable under section 50 within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.

(9) The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.

(10) The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within three years from the date of erroneous refund.

(11) Notwithstanding anything contained in sub-section (6) or sub-section (8), penalty under sub-section (9) shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax.

Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts Sec 74 of the CGST Act 2017

(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 by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilized input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice

(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.

(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for such periods other than those covered under sub-section (1), on the person chargeable with tax.

(4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice.

(5) The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.

(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.

(8) Where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded.

(9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order.

(10) The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund.

(11) Where any person served with an order issued under sub-section (9) pays the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty per cent. of such tax within thirty days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded.

Voluntary Payment of Liability (Tax, Interest, Penalty) - DRC - 03 option

1. Payment on Voluntary Basis is a facility given to tax payers to make payment u/s 73 or 74 of the CGST Act, 2017 within 30 days of issuance of Show Cause Notice (SCN). Payment could also be made by taxpayers before SCN is issued.

2. You can make voluntary payment before issue of notice u/s 73 or 74 of the CGST Act, 2017 or within 30 days of issue of show cause notice (SCN) under the said sections. You cannot make voluntary payment after 30 days of issue of SCN.

3. The pre-conditions to make voluntary payment are:

a. In case, voluntary payment is made before issue of SCN

Show Cause Notice under determination of tax should not have been issued.

b. In case, voluntary payment is made after issue of SCN or statement

30 days' time has not lapsed since SCN is issued.

4. To make voluntary payment against the liability (tax, interest & penalty) based on self-ascertainment of tax, navigate to Services > User Services > My Applications > Intimation of Voluntary Payment - DRC - 03 option.

5. GST Portal does not allow for making partial payments against a liability raised in a SCN. Complete payment of the amount being demanded in SCN has to be made.

6. Application for intimation of voluntary payment can be saved at any stage of completion for a maximum time period of 15 days. If the same is not filed within 15 days, the saved draft will be purged from the GST database. To view your saved application, navigate to Services > User Services > My Saved Applications option.

7. You can deposit the amount in Electronic Cash Ledger through "Create Challan" functionality which is available on voluntary payment screen. On click of "Create Challan" button, you will be redirected to Create Challan screen in Payment module. In the Create challan page, challan amounts will be auto-populated based on the amount of additional cash required considering the tax liabilities and others.

8. Electronic Liability Register, Electronic Cash Ledger and Electronic Credit Ledger will be updated upon filing of Form GST DRC-03 i.e. Debit/Credit (both) entry will be posted simultaneously and PRN will be generated accordingly.

9. Taxpayer needs to select "Liability mismatch- GSTR-1 to GSTR-3B" as cause of payment, when there is a liability mismatch between Form GSTR-1 and Form GSTR-3B and taxpayer is making payment of such liability using Form DRC-03.

10. Taxpayer needs to select "ITC Mismatch- Form GSTR-2A/2B to GSTR-3B" as cause of payment, when there is ITC mismatch between Form GSTR-2A/2B and Form GSTR-3B and taxpayer is making payment of such liability arising using Form DRC-03.

11. These are additional reasons made available under Intimation of Voluntary Payment-DRC-03 for taxpayers for making payments for liabilities noticed later on. The navigation to make such payment is Services > User Services > My Application > Application Type > Select Intimation of Voluntary Payment-DRC -03, Click New Application > select Cause of Payment.

[Alkesh Jani]

Shri

In agreement with the views expressed by our experts, I wish to add that, in case of input tax credit wrongly availed and utilized, Section 50(3) is applicable. As Section 50(1) and (2) are with regards to payment of tax.

Thanks

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

I agree with you in toto.

I further add that Section 73 (5) & (6) of CGST Act saves 100% penalty if tax is paid along with interest and Section 73 (5) & (6) also covers Section 50(3) for saving penalty, if credit is reversed and interest is paid. Conditions of 'before service of notice' and intimation under Section 73 (6) or Section 74 (6) to the proper officer have to be fulfilled.

Section 74 (5) & (6) saves 85 % subject to the condition that tax along with interest is paid. and intimation is given to the proper officer.

Here is the issue of ITC reversal (if taken & utilized), Section 50(3) should be read with Section 73 (5) & (6) or Section 74 (5) & (6) whichever invoked along with Section 73 (1) or Section 74 (1) read with Rule 88 B (3) for the purpose of saving penalty. Section 73 (1) and Section 74 (1) covers both tax not paid and ITC availed or utilised wrongly.

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

I have somewhat deviated from the main issue. Thanks for pointing out. However, the whole information posted by me is correct. My reply covered other aspects also.

I also support the views of Sh.Lov Prajapati Ji and Sh.Gunasekaran K Ji.

[Shilpi Jain]

The existence of balance in cash ledger may not have any relevance as the department considers debit from cash ledger only as a payment of tax to exchequer.

If ITC wrongly availed and not utilised, no interest should be liable.

Suggested to analyse reason for wrong availment - is it due to difference in interpretation or due to error? Additional facts may bring additional facets

[KASTURI SETHI]

From the query it appears that credit has been utilised otherwise the querist would not have talked of Section 73 or 74.

[Ganeshan Kalyani]

Cash paid in Electronic Cash Ledger is an amount parked into our account at GSTN. Govt does not consider this as tax paid unless it is offset. Isn't it.