LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Rate of interest on Reverse ITC

27 April 2020

Dear member, i have a doubt in two Sceinareio.
1. Rate of interest in ITC to be reverse which is ineligible but you availed it.
2. You availed ITC but your supplier is not filed his return , now you decide to reverse it & issue debit note(including interest amount)

please suggest.

Reply
Follow
Share

24 Replies

CA Altamush Zafar (GST Consultant) (15907 Points)
Replied 27 April 2020

1st case it is 18%

2nd case it should be 24% but due to the fact there is no GSTR-2 proper application of section 42 is not possible.

Shivam RC (Student) (23683 Points)
Replied 27 April 2020

@ Nrusingh Beura Sir,

Did you utilised the wrongly availed ITC to offset your Output Tax incase (1.) ???

Nrusingh Beura (55 Points)
Replied 27 April 2020

Yes sir

MARIES (GST Consultant) (219 Points)
Replied 27 April 2020

Sir,

Case 1: In first case, you have availed ITC wrongly. In this regard, sub-section 3 of section 50 of CGST Act provides that excess or undue availment of ITC shall be reversed along with interest at the rate notified. Section 50(3) covers the cases where ITC wrongly availed and utilized it for payment of outward tax liability. And the rate of interest under this section is 24 % per annum and you may note that this interest liability needs to be paid in cash only either in GSTR 3B return or Form DRC-03. I recommend DRC-03 so that it can be correlated easily when department audit comes.

Case 2: In the second scenario, rule 36(4) provides that the taxpayer shall avail ITC to the maximum of 110 % of the amount available in GSTR 2A for the relevant tax period. Hence, ITC availed by you falls within 120 % (up to Dec-19) or 110 % (from Jan-20), then there is no need to reverse it, though the supplier has not filed GSTR-1. If it exceeds 120 % or 110 %, then you are required to reverse the same. Again interest is applicable only if such ITC is utilized for payment otherwise no interest payable. And in this case too, interest is payable under section 50(3) and hence, rate of interest is 24%

1 Like

Shivam RC (Student) (23683 Points)
Replied 27 April 2020

Then , in both the cases INTEREST @ 24% p.a. will be applicable under Section 50(3) of the CGST Act 2017.

1 Like

CA Altamush Zafar (GST Consultant) (15907 Points)
Replied 27 April 2020

Section 50(3) applies where excess input tax credit is availed as per section 42 and not section 17. Section 42 deals with matching of inputs with outputs filed by supplier. Technically it implies for GSTR-2. Only excess credit taken as per section 42 (10) will attract 24% else all other will attract 18%.

MARIES (GST Consultant) (219 Points)
Replied 27 April 2020

Yes, of course. Section 50(3) covers the situations of section 42(10) and 43(10) which refer to mis-match of ITC (GSTR-2) and reduction in out put tax liability (GSTR-3). As GSTR-2 & 3 are suspended for the time being, wrong availment of ITC in GSTR 3B and utilization of the same for payment of out put tax liability attracts interest under section 50(3) and no other sub-section covers it.

CA Altamush Zafar (GST Consultant) (15907 Points)
Replied 27 April 2020

Where interest is to be applied on specific sections it will only be applied on specific sections. Ineligible credits are shown by supplier but are not to be availed as per section 17 and not by virtue of section 42 as the same is shown by supplier in his outward supplies and as of now gets reflection gstr2a of recipient. Therefore 18% interest will only be chargeable. One cannot increase the applicability of a provision by assumption.

MARIES (GST Consultant) (219 Points)
Replied 28 April 2020

Sir,
could you please share the relevant provision which says 18% interest for ineligible credit. 18% int is notified under sec 50(1) only which provides interest for belated payment tax.

whether availment of ineligible falls under sec 50(1) ? if not how and under which sec 18% interest applicable

CA Altamush Zafar (GST Consultant) (15907 Points)
Replied 28 April 2020

It is nowhere specifically mentioned that section 50(1) or section 50(3) will be applicable on availing ineligible ITC. But then you have to admit the fact that the GST Law is poorly drafted.It is a total omission. The method of calculation of interest as per section 50(2) is itself not prescribed in the rules and further as per various court judgments where the method of calculation is not prescribed if required under law then there can be no levy of tax or. interest as the case maybe.

Now coming to our point the reason I am suggesting 18% is that if you notice the flow of the law all the rules mentioning reversal of credits states that amount shall be added to output tax liability or it is clearly mentioned that interest under Section 50(1) will be applicable. Even for section 42 & 43 it written that amount of reversal shall be added to output tax liability in GSTR-3. But the act here is clear that interest shall be charged @ 24% therefore 18% in this case is not applicable. Since reversal of ITC becomes part of output tax interest of 18% should be applicable

Also take the present case that after availing ineligible ITC the taxpayer has paid his taxes so in effect he hasn't paid his taxes. So here it is another reason that 18% is chargeable.

A view can also be taken that no interest can be charged in case where ineligible ITC has been availed but not used as there is no specific provision. As per recent High Court Judgement that in case of interest also adjudication has to be done where interest has been challenged by the taxpayer. In that case under which section or rule will the officer adjudicate interest.

So there can be various reasons for various interpretations. But as per me 18% is correct as it takes into account both the essence and the intention of the law.

MARIES (GST Consultant) (219 Points)
Replied 28 April 2020

@ CA Altamush Zafar,

I am also of the same view that GST law does not answer this situations directly due to poor drafting.

CA Altamush Zafar (GST Consultant) (15907 Points)
Replied 28 April 2020

Exactly and that is the reason why I said that the applicability of any provision cannot be stretched just because it is ambiguous.

Hope the above write-ups helped

MARIES (GST Consultant) (219 Points)
Replied 28 April 2020

Thanks for writing a lengthy write-up. Had a nice discussion. As the law is not clear, we have no other option but to wait for settlement of interpretation by courts.