Rate of interest on Reverse ITC

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.

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%

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.

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.

@ CA Altamush Zafar, 

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

 

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 

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. 

Altogether amendment in law will be required