Calculation under Rule 42

[Rajesh Kumar]

Sir/madam,

A transporter is supplying taxable as well as exempted supplies and also reversing ITC in monthly 3B returns as per the ration of exempted and taxable supplies for the month. In a whole year, party has reversed Rs. 8 lakh. Now department has taken up the issue and calculation done on yearly basis, they directed the party to pay Rs. 52 lacs more. The method of calculation is same, the difference is monthly and yearly. Rule 42 also says to calculate at the end of year.

Please guide how the interest will be calculated. Total 60 lakh to be paid . In some months ITC availed only Rs. 1 lakh but in some months it is about Rs. 20 lakh.

can we take average amount 60/11=5 lakh per month for interest calculation?

or interest and penalty can be avoided ?

[Amit Agrawal]

Rule 42 (2) (a) reads as follows:

"9[Except in case of supply of services covered by clause (b) of paragraph 5 of the Schedule II of the Act, the input tax credit] determined under sub-rule (1) shall be calculated finally for the financial year before the due date for furnishing of the return for the month of September following the end of the financial year to which such credit relates, in the manner specified in the said sub-rule and-

(a) where the aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’ exceeds the aggregate of the amounts determined under sub-rule (1) in respect of ‘D1’ and ‘D2’, such excess shall be 10[reversed by the registered person in FORM GSTR-3B or through FORM GST DRC-03] in the month not later than the month of September following the end of the financial year to which such credit relates and the said person shall be liable to pay interest on the said excess amount at the rate specified in sub-section (1) of section 50 for the period starting from the first day of April of the succeeding financial year till the date of payment; or"

[Vijay kumar]

Annual reconciliation is mandatory under Rule 42. If any excess amount is required to be paid than what was reversed on monthly basis, same needs to be paid before 20th October of the next FY.. Otherwise, interest needs to be paid from 1st April of the next FY till the date of payment. If paid before issuance of SCN, no penalty provided it is not a case of suppression u/s 74.

[Rajesh Kumar]

The said non reversal/ payment is noticed by the GST officers during their visit. Therefore, the are insisting to pay under section 74(5).

[Amit Agrawal]

& what are your grounds and reasoning for non-reversal of ITC earlier?

[KASTURI SETHI]

Such reversal is not on your own. The amount is being reversed on being pointed out by the department. Hence not voluntary reversal.

[Shilpi Jain]

You can take a stand that there was no suppression of the fact that the reversal was supposed to be done since you had in your monthly returns disclosed reversal u/s 42.

Hence contest the penalty.

[Rajesh Kumar]

Ma'am , party was continuously availing and utilising as per their requirements and now, the same is noticed by department.

Can we take stand that we have time to file GSTR-9 and accordingly we have time ? On this basis, can department waived off penalty u/s 74 of CGST Act 2017.

if yes, then what if last date to file GSTR 9 has been gone but the same is pending to file ?

[Amit Agrawal]

Levy of penalty u/s 73 or 74 has no direct relationship with the fact that whether GSTR-9 was filed or not.

Section 59 states as follows: "Every registered person shall self-assess the taxes payable under this Act and furnish a return for each tax period as specified under section 39."

And return u/s 39 is Form GSTR-3B.

However, the fact of non-filing of GSTR-9 (presumably, when required & not filed though due date is gone) - in itself - cannot be used by you to avoid penalty u/s 74. Actually, if you try this argument, this fact will be used against you by Dept.

Penalty u/s 74 can be avoided only if you can prove that ingredients to levy penalty under that section does not exist in a given situation.

These are strictly personal views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

With due respect, I disagree with the proposition that just because of the fact that 'assesses has shown reversal u/s 42 in the monthly return/s as per Rule 42 (1)', he can avoid penalty u/s 74 against 'non-reversal of excess ITC as per Rule 42 (2) (a), within the time-limit permitted therein'.

As per said 42 (2) (a) (as reproduced in post No. 1 above), such excess shall be 10[reversed by the registered person in FORM GSTR-3B or through FORM GST DRC-03] in the month not later than the month of September following the end of the financial year to which such credit relates.

These are strictly personal views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

In the context under discussion, I wish to draw attention to 'Explanation 2' u/s 74 which reads as follows:

"For the purposes of this Act, the expression “suppression” shall mean non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer."

AI Summary

Annual ITC reconciliation: interest accrues from fiscal year start until payment for excess credit reversal. Rule 42 mandates annual final calculation of input tax credit and reversal of any excess for exempt supplies; where annual D1/D2 exceeds monthly reversals, the excess must be reversed by the September deadline (practical compliance deadlines extend) and interest runs from the first day of April of the succeeding year until payment. Interest and potential penalties for suppression may follow if excess is not paid in time; disclosure in monthly returns or delayed filing of annual returns alone does not automatically avoid interest or penalty.