ITC Reversal

[Ethirajan Parthasarathy]

As per proviso to section 16(2) read with Rule 37, a business entity who fails to pay the vendor within 180 days of issue of invoice has to reverse the ITC 'Availed' on such invoices.

All will agree that there is vast difference between ITC availed and ITC utilized. Unless ITC availed is 'utilized', there is no loss of revenue to government.

It is not clear why the statute provides for reversal of ITC 'availed' with interest under Rule 37 read with Sec.16(2).

Can anyone throw light on this.

For reversal, it is provided that relevant ITC will be treated as output tax. Strangely it appears that this output tax can be discharged by utilizing the same ITC which is being reversed.

Is my understanding correct.

[ABHISHEK TRIPATHI]

Dear Sir,

Indeed, Sir, you have rightly said. Even the same difference is extremely visible under GST.

Took ITC – Availed

Lying in the ledger – Unutilized

Used for discharging tax liability– Utilized.

Otherwise, in place of “availed”, they would have used “utilized or unutilized”. More cumbersome maybe. (*jibe*)

Whatever you said, it makes a lot of sense regarding no revenue loss. The interest liability should be w.r.t. to utilized credit.

But whether it is utilized or unutilized, it was always with the taxpayer. The credit was always lying in the ledger of the taxpayer, in such a situation, for both the utilized or unutilized credit government position doesn’t change (ignore, was trying some argument from the other side). The only rescue to this argument might be, let say, registered person availed the credit in April and that specific credit was never utilized and no payment made in 180 days then the government has no revenue loss because that specific credit was never used to discharge the tax liability.

For reversal, it is provided that relevant ITC will be treated as output tax. Strangely it appears that this output tax can be discharged by utilizing the same ITC which is being reversed. - Very Possible

+1 to your brilliant observation.

[KASTURI SETHI]

Dear Sir,

On this issue pl. go through see-saw situation

This very issue was also raised in pre-GST era. There was a see-saw situation on this issue.

(i) The Board issued Circular No. 897/17/2009-CX., dated 3-9-2009 clarifying that interest was to be charged if wrongly availed.

(ii) . Punjab & High Court vide Order dated 3.7.2009 held that interest to be charged if wrongly availed and utilized in the case of Ind-Swift Lab. Ltd. Vs.UOI = 2009 (7) TMI 98 - PUNJAB & HARYANA HIGH COURT

(iii) The Supreme Court vide order dated 21.2.11 held that interest was to be charged if credit wrongly availed in the case of Ind-Swift Lab. Ltd.Vs. UOI = 2011 (2) TMI 6 - SUPREME COURT.

(iv) The Board vide Circular no. 942/3/2011-CX. dated 14-03-2011 based (on the judgement of Supreme Court ) issued instructions to the effect that interest was chargeable if credit availed.

(v) Thereafter, the word. 'AND' was inserted between 'taken' and 'utilised' vide Notification No. 6/2015-C.E. (N.T.), dated 1-3-2015. From 1.3.15 onwards interest was to be paid if credit utilised.

The above sequence of events indicates Govt.'s bent of mind even in GST regime.

[KASTURI SETHI]

Dear Sir,

Also see how Delhi High Court has interpreted the meaning of 'availed' and available':-

Delhi High Court in the case of PARSHVA OVERSEAS Vs. JOINT SECRETARY reported as 2011 (2) TMI 1208 - DELHI HIGH COURT had held in para no.13 as under:-

"The word ‘availed’ signifies actual utilization, whereas the word ‘available’ does not connote and mean actual utilization."

[Punit Agarwal]

Reference can also be made to a recent judicial pronouncement made by Patna High Court in case of M/s Commercial steel Engineering Corporation Vs State of Bihar = 2019 (7) TMI 1452 - PATNA HIGH COURT

[KASTURI SETHI]

Sh.Punit Agarwal Ji,

The case law shared by you is very relevant and makes the picture clearer about legal/literal meaning of the word "availed". This case law will help so many assessees whose past cases are pending in the courts.

Thank you very much.

K.L.SETHI

AI Summary

Debate on GST rule: Why reverse Input Tax Credit with interest if availed but not utilized? Legal interpretations explored. A forum discussion revolves around the Goods and Services Tax (GST) provision requiring businesses to reverse Input Tax Credit (ITC) if they fail to pay vendors within 180 days of the invoice date. Participants debate the difference between ITC 'availed' and 'utilized,' questioning why reversal with interest is required if ITC is merely availed but not utilized, as it poses no revenue loss to the government. Historical legal precedents and interpretations by various courts and circulars are cited to explain the government's stance on charging interest on availed credit. The discussion highlights ongoing confusion and legal interpretations regarding ITC reversal.