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.

AI Summary

Input tax credit reversal: whether reversal and interest attach to credit merely availed or only when actually utilized.
The GST proviso read with Rule 37 requires reversal of input tax credit described as availed when supplier payment is not made within the prescribed period; reversal is treated as output tax and attracts interest. The debate centres on the distinction between credit merely lying in the ledger (unutilized) and credit actually applied to discharge tax (utilized), with cited administrative circulars and judicial decisions indicating a jurisprudential shift toward treating interest and reversal as appropriately triggered by utilization rather than mere availment.