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TMI BlogQuery on Rule 37 of CGST Rules and ITC ReversalX X X X Extracts X X X X X X X X Extracts X X X X ..... Query on Rule 37 of CGST Rules and ITC Reversal X X X X Extracts X X X X X X X X Extracts X X X X ..... les, 2017. The department has demanded reversal of ITC, along with interest and penalty, despite the following key facts: * ITC was initially availed as per Section 16(2) of the CGST Act, which allows ITC on invoice receipt even before payment to the supplier. * The payment to suppliers was made after 180 days but before the completion of the audit. * As per the third proviso to Section 16( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2), ITC becomes eligible again upon payment to the supplier, meaning that this is merely a timing issue rather than a case of ineligible ITC. * ITC was not utilized at any point before payment to suppliers. The electronic credit ledger records substantiate that the ITC remained unutilized, demonstrating that this was a revenue-neutral transaction. * The department has imposed interest and pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty arbitrarily, despite there being no loss of revenue to the government. Queries for Expert Opinion: * Is ITC reversal still required when payment has been made before the completion of the audit, considering the third proviso to Section 16(2)? * Does the timing difference in ITC availment warrant an interest liability, especially when ITC was never utilized? * Can this be considered a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocedural lapse rather than a substantive violation, given that ITC is eventually eligible upon payment? * What judicial precedents or CBIC clarifications support the stance that ITC reversal is not required if payment is made later but before adjudication? * Would imposing a penalty in such a case align with the principles of natural justice, given that there was no intention to evade tax? Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oking forward to insights and expert opinions on this matter, especially with references to relevant rulings or GST Council clarifications. Reply By Sadanand Bulbule: The Reply: Your query is answered by CBIC Circular No.170/02/2022-GST dated 06/07/2022. For academic purpose,refer Madras HC judgement vide 2025 (2) TMI 504 as regards to the necessity of payment of consideration to the supplier w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin 180 days from the date of invoice to avail ITC. Reply By RAHUL MODI: The Reply: Thank you for your response. We agree that CBIC Circular No. 170/02/2022-GST dated 06/07/2022 supports our stand on ITC reversal under Rule 37. However, the department has issued an order under Section 74, treating this as a case of intent to evade tax rather than a timing issue Reply By Sadanand Bulbule: The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reply:
Issue of notice under Section 74 for such issue is absurd and unsustainable in the absence of " intent to evade tax".
Reply By Sadanand Bulbule:
The Reply:
In a way, the benefit of ITC under Section 16 is dynamic in nature and never absolute. So the recipient taxpayer has to be very careful and cautious. X X X X Extracts X X X X X X X X Extracts X X X X
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