Reversal of ineligible ITC

[Krishna Murthy]

An assessee claimed ineligible ITC (CGST and SGST). After knowing that the same is not eligible for ITC he has reversed the same in GSTR 3B. However, since he does not have enough credit in CGST and SGST, he has reversed the same using IGST balance available. Is this valid or he should have paid CGST and SGST through challan. Sec 49(5) allows IGST ITC to be used to pay CGST and SGST.

[Ganeshan Kalyani]

In my view, it is allowed.

[KASTURI SETHI]

Yes. Allowed. Covered under Section 49 (5)(a) of CGST Act.

[Alkesh Jani]

Sir,

For sake of my knowledge, I wish to raise few doubts in the matter. As the Input Tax can be utilize for the payment of Tax, IGST can be utilize for payment of CGST and SGST Tax. Further, Input Tax credit is an amount equal to tax but not Tax. In this regards if authority is required than, Section 49(4) of CGST is give below for ready reference

"(4) The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed."

Further, the definition of "Output Tax" is "(82) “output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis;"

Moreover, Explanation (b) (i) & (ii) which is also give below

(i) “tax dues” means the tax payable under this Act and does not include interest, fee and penalty; and
(ii) “other dues” means interest, penalty, fee or any other amount payable under this Act or the rules made thereunder.

based above, can we say that reversal of the credit is payment towards output tax?

Shri. Kasturiji Sir, might be well aware of this concept of erstwhile Law, CENVAT Credit was equal to amount of duty and not duty.

Same ratio is applicable in GST also?

Thanks,

With due regards

[KASTURI SETHI]

Dear Sh.Alkesh Jani Ji,

In pre-GST era, Cenvat Credit was duty and NOT equal to duty. Go through CESTAT's Circular wherein pre-deposit of duty under Section 35 F was allowed through Cenvat Account treating it as duty. Duty paid character was same whether through PLA or Cenvat Account.

CESTAT - Mandatory pre-deposit for filing Appeal after 6-8-2014 can be paid from Cenvat account or adjusted against deposit made during investigation

Circular F. No. 15/CESTAT/General/2013-14, dated 28-8-2014

Subject : Registration of appeals received on or after 6-8-2014 subsequent to amendment in the Customs Act, 1962, the Central Excise Act, 1944 and the Finance Act, 1994 - Instructions - Regarding.

As there is confusion of adjustment of Cenvat Credit against mandatory penalty, clarification have been sought from Competent authority. In absence of any clarificatory Circular on the issue, all the DRs/ARs/TOs are directed that the appeals received on or after 6-8-2014 may be registered in following cases :

(i) If the mandatory deposit of duty or penalty, as the case may be, has been made in Cash and evidence thereof is produced at the time of filing appeal.

(ii) If mandatory deposit of duty confirmed is made from CENVAT account and evidence thereof is produced.

(iii) If the appellants have made deposit of the duty assessed subsequently, during investigation and if the same is more than the mandatory deposit as stipulated in the captioned amendments.

Wherever further clarification is required the same will be issued after getting a clarification from the competent authority.

[Alkesh Jani]

Sir,

I highly appreciate for the Circular quoted, the highlighted is with regards to DUTY confirmed and payment of duty through CENVAT Account. At no point of time I have denied that Credit cannot be utilized for payment of DUTY / Tax. Ongoing through the Cenvat Credit Rules, 2004 it clearly mentions of an amount equal to central excise duty paid. It is an amount equal to duty/Tax, therefore, it can be utilize for payment duty/tax.

Further, in GST regime, You are requested to give your valuable views on 'any other amount', which is that amount and from where it comes from, as fees, interest and penalty is specified but “any other amount” is not defined or specified.

Thanks,

With due regards

[KASTURI SETHI]

Dear Sh.Alkesh Jani ji,

The wording, 'An amount equal to Central Excise duty paid' does not convey the message that 'Cenvat Credit was equal to amount of duty and NOT duty'. The legal status of 'duty' remains the same whether through Cenvat or PLA. 'An amount equal----------' was for the purpose of recovery of arrears of duty etc.

Remaining part later on.

[KASTURI SETHI]

Dear Sh. Alkesh Jani Ji,

In continuation of yesterday's reply; (we are discussing in a sportsman spirit and health way)

(1) 'Any other amount' stands for amount paid or to be paid for on account of cenvatable inputs, input service etc. being used for outward taxable and exempted supplies of goods or services or both. Other examples can be traced out.

(2) Cenvatable invoices (now ITC invoices are equal to cheques which are deposited by the taxable person into their 'current account' i.e. Electronic Credit Ledger' and the taxable person can either use the same for payment of tax or withdraw by way of refund subject to the fulfillment of conditions laid down in CGST Act/Rules.

(3) The querist has not caused any loss to the revenue by way of making payment of balance due CGST/SGST out of IGST. It is their money/amount earned by paying tax on inward supply as per GST laws. That is why Govt. has allowed taxpayers to pay interest on the net liability in cash only.

(4) Section 49(5) is not subject to sub-section 4 of Section 49. No chaining.

These are my views.

[Alkesh Jani]

Dear Shri Kasturi ji Sir,

At the starting line of the doubt raised by me on 13.08.2019, says “for sake of my knowledge”. Any doubt or different views are expressed, it lifts us to new horizon, the intention to raise the doubt is to enrich myself by learning from the insight of the expert and experienced person like you, and my doubt will also help public at large.

Now with regards to query, the querist has taken and utilized the ITC (CGST+SGST) which was ineligible, and as they have utilized it the same cannot be compensated through IGST, as ITC can be utilized only for payment of “Output Tax” and “Output tax” means tax chargeable under GST on taxable supply made by him. The reversal of ineligible ITC cannot be termed as payment of output tax. However, it was open for reversal but before utilization and not after utilization and reversing the same from different head (IGST) cannot be permissible.

The restriction provided under Section is required to be followed.

These are my views, and I conclude here leaving for the experts and querist to decide.

Thanks,

With regards

AI Summary

Use of IGST credit to adjust CGST/SGST balances contested; permissive administrative reading vs strict output tax limitation.
A taxpayer reversed ineligible CGST and SGST ITC by utilising IGST balance because CGST/SGST credits were exhausted. Forum respondents largely view this as permitted under the rule allowing IGST to be applied against CGST and SGST liabilities and by analogy to pre GST credit usage, while a dissenting view argues that reversal is not payment of output tax and that post utilisation adjustment via IGST may contravene the prescribed credit application hierarchy.