Interest Applicability U/S 50(3)

[Ashiesh Prremji]

Dear Sir,

whether interest rate @24% mentioned u/s 50(3) is applicable on reversal of any excess claimed ITC or we need to pay @18% only ?

Thanks,

[Rachit Agarwal]

In this case there are two views

1. On plain reading of the provisions intrest is payable @ 24% on the reversal of any excess ITC claimed. Further plea may be taken no interest is payable in a situation whether the credit has been availed and have neven been utilized as held by Hon'ble Patna High Court in a Writ Petition filed by Commercial Steel Company pronounced in post GST Regime.

2. Other view is that since the assessee has availed the excess credit, hence the same becomes payable. All the tax which become payable shall be liable to interest @ 18%

[KASTURI SETHI]

Section 50(1) of CGST Act talks of payment of tax along with interest "on his own", then rate of interest is 18%. ( It implies that when the registered person acts in a bona fide manner manner.) Otherwise in all the remaining situations, rate of interest is 24 %. Remaining situations are well explained in Section 50(3) to be read with Section 42(10) & 43 (10) i.e. reduction in output tax liability, undue utilisation, mala fide action etc.

[KASTURI SETHI]

In simple words, if tax has not been paid due to technical lapse, clerical error etc. and the same has been paid on one's own (without any intervention from the department), 18% is applicable and if evasion of tax has taken place with mala fide intention, rate of interest is 24 %. Excess and undue ITC availed and utilized is also a sort of evasion of tax.

[Spudarjunan S]

Dear Ashiesh ji,

In addition to the view of the experts above, you may also consider the below points -

Interest of 24% u/s 50(3) applies only when there is a scenario referred u/s 42(10) or 43(10) of CGST Act, 2017 which is not possible as of today due to deferment in implementation of GSTR-2.

As there is no provision of interest on interest, you may always opt to pay interest @ 18% considering such reversal of excess credit as failure to payment of liability (If you have not utilised such excess availed credit, you amy also litigate on entire interest). As the difference of 6% would not change even if you are paying today or after 72 months.

[Ashiesh Prremji]

Thank You very much to all of you for interpreting content of above provision, I really appreciate your effort !

AI Summary

Interest on reversed input tax credit may be higher for mala fide cases or lower when paid voluntarily. Application of the higher interest rate on reversal of excess input tax credit depends on taxpayer conduct and statutory triggering mechanisms: deliberate evasion, undue utilisation or other mala fide action attracts the higher rate, whereas voluntary self-correction for inadvertent or technical errors attracts the lower rate; limitations in the operation of related corrective processes and the absence of a provision for interest on interest affect treatment and potential litigation strategies.