interest on reversal of ITC wrongly claimed

[tejas kulkarni]

I have wrongly claimed ITC of IGST on inputs of rs 5,00,000 in the month of april and i reversed it immediately in the month of june. However till june amount of ITC is remained as unutilised credit in credit ledger. i have not used the ITC against liability to that extent

. Whether i need to pay interest from the date of availment of itc till the date of itc reversal even if i have not utilised the same.?

[YAGAY andSUN]

Section 50(3) of the Act provides that a taxable person who makes an undue or excess claim of the ITC under Section 42(10) shall pay an interest at the rate not exceeding 24% on such undue or excess claim.

[Mahir S]

Yes. I agree with above views.

When recipient has made an excess or undue claim of ITC as per section 42(10) of the Act, rate of interest applicable will be 24%.

[Alkesh Jani]

Shri

I dont know how far this may help you, but I find it relevant to mention,

"The provisions underlying Section 73 is self eloquent and it is only if such availment is for reducing a tax liability that it vests jurisdiction in the assessing authority to recover such tax together with levy of interest and penalty under section 50 but until such time that the statutory authority is able to demonstrate that any tax was recoverable from the petitioner, a reflection in the electronic credit ledger cannot be treated as an ‘availment’."

High Court -Patna

[KASTURI SETHI]

I agree with Sh.Alkesh Jani Ji. If there is reduction in output tax liability as result of mismatching, then interest is payable otherwise not. In other words, if you have not utilised ITC taken, you are not required to pay interest.

ITC reversed amounts to ITC not taken.

[Mahir S]

If this had been the intention of the Govt, then section 50 and 42 of the Act would not have been formed at all.

In this way, all will avail excess or wrong input credit and if detected, they will reverse saying they have only availed n not utilised.

To overcome this scenario, interest clause at a very higher rate has been rightly inserted by the authority.

[Alkesh Jani]

Shri

I am of the view that Section 42(10) of the CGST Act,2017 comes into play after adhering to Section 42(3) and 42(5). As on now no such communication facility is available. Return GSTR-2 and GSTR-3 are in abeyance, where facility to upload the invoice by recipient is not available and GSTR-2A is only to view. Therefore, Section 42(10) cannot be invoked in the present condition and therefore, Section 50(3) will also not applicable.

[KASTURI SETHI]

Dear Alkesh Jani Ji,

You are absolutely right. As per Section 50 (3) interest is payable on two grounds and these are ;

(i) ITC claimed is undue or excess.

(ii) Undue or excess ITC claimed should be according to the parameters laid down under Section 42 (10) or Section 43(10) of CGST Act.

There is no dispute or confusion or doubt about above two situations. It is a fact that the functionality of matching inward supplies or output tax liability has not been activated on the Common Portal System till date. In the absence of this functionality, the department cannot ascertain undue or excess claim of ITC.

In the instant case, the querist has availed ITC wrongly in April and on realising the mistake reversed the credit in June on his own. Thus the mistake has been rectified in June. Now as and when the functionality of matching inward supplies and output tax liability become operational on the Common Portal System, the ITC availed will be found matched as it stands already rectified before pointing out by the Common Portal System.

Hence no question of payment of interest arises.

[ARUNKUMAR THANGARAJ]

Hello Sir,

Good Afternoon,

This is Arun Kumar, Working in a pvt.company.

Just i want to clarify regarding in house line rejection processing cost, we need to charge GST on supplier or not required.

normally our vendor's are accepted for purchase returns and line rejection material cost with GST but processing cost concept they have accept without GST.

Kindly advise us, If we need to charge GST on rejection part processing cost.

if charge GST I have to show our GSTR-1 outward liability or

I have to reduce my Input GST balance in GSTR-3B.

Also supplier point of view, if charge GST, they can also able to take the GST credit.

Regards

Arun Kumar.T

9965146638

[Bhavika Chothani]

If you have used this ITC to pay your liability then you will have to pay an interest of 24%. But as you said it is unutilised ITC then you need to pay any interest

[ARUNKUMAR THANGARAJ]

Dear Bhavika Chothani sir,

Thank you for your reply.

Do you have any notification and section for in house line rejection processing cost is liable to charge GST.

If you have a documentary evidence, kindly share with us.

Thanks & Regards
Arun Kumar.T
9965146638

[Kushal Mishra]

Dear Alkesh Jainji and Kasturi Sir,

I also have the same view which you expressed but since the communication facility now has been enabled what would be your response now to your above comments.

Secondly, in case where there are genuine mistake (Input error manually) that in case of ITC figures turnover figure has been punched which was never utilised and reversed later on, there will no supplier to match credits then under which section Government can demand Interest.

[KASTURI SETHI]

Dear Sir,

ITC is to be taken as per Act. I hope you have followed this. The buyer should not suffer credit or interest because of supplier's fault. Undoubtedly, litigation will be there I cannot write more than this as ball is in the Court. The matter is sub judice.

ITC cannot be denied due to default on the part of supplier-Delhi High Court in the case of Tele Media Ltd. The party challenged Section 16(2)(C) and Section 16(4) of CGST Act.

Section 16(2)(c) and Section 16(4) of CGST Act for ready reference

"(c) subject to the provisions of [section 41 or section 43A], the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and; "

"(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or [* * *] debit note pertains or furnishing of the relevant annual return, whichever is earlier :"

Last date of hearing was held on 18.9.19. It is still pending decision. You can trace out the status of this case law.

[Alkesh Jani]

Shri Mishraji,

I do not find any ground or reason to differ with the views expressed by our venerated Shri Kasturiji Sir

[BHAVIN MEHTA]

In my view Interest will not be applicable as pointed out in other replies by respected seniors i would like querist to refer to judgement given by Hon. Bihar High Court in case of M/s Commercial Steel Engineering Corporation Civil Writ Jurisdiction Case No.2125 of 2019 = 2019 (7) TMI 1452 - PATNA HIGH COURT. This judgement will help you in framing your reply

AI Summary

Interest on undue input tax credit may apply under law, but may be avoidable if reversed before utilisation. Competing views govern interest on wrongly claimed ITC: one view treats statutory interest as payable on undue or excess ITC claims identified under the matching framework to prevent abuse; the contrary view-supported by judicial commentary and practical concerns about the inactive matching functionality-holds that interest is payable only when the wrongfully claimed ITC has been utilised to reduce output tax liability, and that reversal before utilisation and before any matching determination should preclude interest.