Interest on reversal on non payment to vendors within 180days, Goods and Services Tax - GST

[DHRUV CHOPRA]

We have received an inward supply invoice in April 2022, but we could not make payment to the vendor within 180 days neither we have reversed the ITC on non payment within time limit.

However payment is made to vendors after 250 days of issue of invoice.

Interest should be calculated from which date to which date. Pls give section and rule reference for the same.

Posts / Replies

[Madhusudan Mishra]

2^nd Proviso to S.16(2) read with R.37.

[Amit Agrawal]

For this post, I am ignoring a legal view that interest u/s 50 cannot be levied on subject situation under discussion here.

And if so, in given situation, Interest will be payable only after time-limit of 180 days prescribed under second proviso to Section 16(2) gets over.

In other words, interest u/s 50 will start from 20.11.2022 as you failed to reverse the ITC while filing Form GSTR-3B for the month of October, 2022 (i.e. this is with the understanding that invoice is dated April, 2022 and above-said time-limit of 180 days lapsed in Oct, 22) till the end of month previous to the month when payment was made to the vendor.

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

[Padmanathan Kollengode]

Learned Friend Amit Ji,

Pls post why Section 50 is not applicable in impugned situation for the benefit of querist and readers.

[Amit Agrawal]

@ Shri Padmanathan Ji,

With regards to your last post, a legal view that interest u/s 50 cannot be levied on subject situation under discussion here is as follows (Please treat this as pure academic discussion):

A. Second proviso to Section 16(2) requires 'an amount equal to the input tax credit availed by the recipient shall be paid by him along with interest payable under section 50, in such manner as may be prescribed' in a pre-defined situation.

B. Rule 37 requires tax-payer to pay or reverse an amount equal to the input tax credit availed in respect of such supply, proportionate to the amount not paid to the supplier, along with interest payable thereon under section 50.

C. Prior to Substitution vide NOTIFICATION NO. 19/2022–Central Tax dated 28-09-2022, Rule 37(2) reads as follows:

The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax liability of the registered person for the month in which the details are furnished. Present Rule 37 does not have any such clause.

D. Prior to omission vide NOTIFICATION NO. 19/2022–Central Tax dated 28-09-2022 w.e.f. 01-10-2022, Rule 37(3) reads as follows:

"The registered person shall be liable to pay interest at the rate notified under sub-section (1) of section 50 for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability, as mentioned in sub-rule (2), is paid."

Present Rule 37 does not have any such clause.

E. Section 50(1) deals with 'fails to pay the tax or any part thereof to the Government within the period prescribed' whereas present Rule 37(1) requires payment or reversal of an amount equal to the input tax credit availed etc. 'Payment or reversal of an amount equal to the input tax credit availed' cannot be equated with 'fails to pay the tax or any part thereof to the Government within the period prescribed' and hence, Section 50(1) does not apply to the situation under discussion here.

F. Section 50(3) deals with 'the input tax credit has been wrongly availed and utilised' whereas in situation under discussion here, ITC was correctly availed. Hence, Section 50(3) also does not apply to the situation under discussion here.

G. Second proviso to Section 16(2) does not make initial ITC taken as wrongly taken.

H. Furthermore, Rule 88B (i.e. Manner of calculating interest on delayed payment of tax) does not cover situation under discussion here. So, there is no method of calculating interest u/s 50(1) read with Section 50(2) OR u/s 50(3) is prescribed till date.

I. When Section 50 read with Rule 88B cannot be applied to levy interest in subject situation, the words used in present 'Second proviso to Section 16(2)' & present Rule 37 (i.e. interest payable under section 50) should be interpreted as 'interest payable i.e. NIL under section 50'.

J. Substitution u/r 37(2) and omission of Rule 37(3) - as explained in Para C & D above - further support this legal view that 'interest u/s 50 cannot be levied on subject situation under discussion here'.

L. Lastly, question which also needs to be considered is 'Whether can Section 73/74 be used to raise demand upon tax-payer just because tax-payer has done 'non-reversal OR non-payment of an amount' despite second proviso to Section 16(2) read with Rule 37'? I have my doubts even there (though this requires much more study and deliberation) as Section 73 / 74 deals with ITC wrongly availed or utilised and I see that subject issue under discussion here does not fall either under 'ITC wrongly availed' or 'ITC wrongly utilised'.

As said before, Please treat this as pure academic discussion & nothing more.

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

[Amit Agrawal]

I also feel that there is marked difference between '.... where a recipient fails to pay to the supplier ..... ' (the wordings used in second provisio u/s 16 (2) (d)) and '....... where a recipient does not pay to the supplier ......' (the wordings which are not used in second provisio u/s 16 (2) (d)). And both type of these wordings cannot be read as equal / same, in my view.

As querist only said that he could not make payment to the vendor within 180 days & I do not know for sure if it was also failure to pay, his attention in invited to very lengthy discussion we had on TMI under Issue-ID: 118298 bearing subject-line as 'input credit'.

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

[Padmanathan Kollengode]

Ld Amit Ji,

Thank you so much for the elaborate reply to the previous query.