Lapse of ITC under inverted duty structure for fabric companies

[Kanishk Manglik]

Hi, this is case is regarding entity dealing in fabric under inverted duty structure.

Background: Initially since July 2017 the accumulated ITC due to inverted duty structure in case of supply of fabrics was not allowed. However As per notification no 20/2018-Central tax (Rate) dated 26.7.2018 the Refund of such ITC was allowed from Aug 2018. This notification followed by circular no 56/30/2018-GST dated 24.08.2018 also talked about Lapse of the ITC which has been accumulated till 31.07.2018 in order to be eligible for refund from Aug 2018. This accumulated ITC up to 31.07.2018 was required to be lapsed in the 3B return of August 2018.

Query: Now in my case the ITC has not been reversed in the return of august for whatever reason. Now i want to comply with the notification and reverse the ITC. Whether i shall be liable to interest for not reversing the ITC timely. The ITC is in my credit ledger only and has not been utilized against discharging outward Liability.

AI Summary

Lapse of Input Tax Credit: failure to reverse may trigger administrative interest, but legal challenges complicate compliance obligations.
The issue is whether accumulated Input Tax Credit under an inverted duty structure must be reversed in a specified return and whether failure to reverse attracts interest, given the credit remains unused in the electronic ledger. Administrative guidance and a subsequent circular indicate interest may be payable for non reversal, while respondents argue no interest is due where there is no tax shortfall and the requirement to lapse credit has been judicially challenged; practitioners are advised to consider reversal under protest and to balance litigation risk against compliance costs.