ITC of RCM Paid Wrongly

[Ethirajan Parthasarathy]

A person inadvertently pays RCM tax on let us say Municipal Tax paid.

Will he be wrong in taking ITC of such tax. The doubt is because the definition of “input tax” will include RCM tax “payable” u/s 9(3) or 9(4).

Since RCM is not payable at all in the above case, a doubt arises on eligibility of ITC.

If input credit is not allowed, can the dealer claim refund of tax.

[Ganeshan Kalyani]

In my view you can take credit. The tax paid under RCM is a revenue neutral to the Govt. unless your final product is exempt.

[Alkesh Jani]

Sir,

for which period. As you can adjust the the same towards your output liability.

Thanks

[Rajagopalan Ranganathan]

Sir,

According to Section 15 (2) (a) of CGST Act, 2017 "the value of supply shall include any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier.

Therefore Municipal tax is paid under separate law other than CGST Act, SGST Act, UTGST Act and Goods and Service Tax (Compensation to States) Act the said tax in includible in the trasaction value on which gst is paid/payable. Therefore you can avail ITC of gst paid on Municipal Tax paid under RCM.

[Prasanna Kumar]

In my opinion, since there is no supply involved(assumed that Municipal tax is paid on brining the goods into the local area or sending out of the loal area) the RCM is paid on wrong expense, hence not eligible for ITC. Probably asking for refund is the best way since it is paid by mistake.

[Alkesh Jani]

Shri

As per the definition of “Output Tax” given at Section 2(82) of CGST Act, the payment of RCM is required to be paid in cash (not from ITC). Therefore, the person have made a mistake of paying the tax on RCM basis by way of cash, which can be adjusted.

AI Summary

Input tax credit eligibility for mistakenly paid reverse charge tax may depend on supply characterization and adjustment rules.
Whether a taxpayer who inadvertently discharged tax under the reverse charge mechanism on municipal tax may claim input tax credit is contested. One view treats RCM-paid tax as includible in transaction value and eligible for ITC where GST is payable; another view says RCM payment on non-supply expenses is a mistaken cash outlay not eligible for ITC and may require a refund. It is noted that RCM must be paid in cash and cannot be debited to ITC, though an erroneous cash payment may be adjusted against output liability if permitted.