Interest on GST liability

[Deepak Bubna]

Hello everyone,

Can Interest on tax liability not be computed to the extent input credit is available in electronic credit ledger at the time such tax became payable ? In simple words , if tax demand is Rs. 100 and electronic credit ledger has Rs. 80 , whether interest is to be computed on Rs. 100 or Rs. 20 (Rs. 100- Rs. 80) ?

[Amit Agrawal]

Interest needs to be calculated under Section 50 of the CGST Act, 2017 read with Rule 88B of the CGST Rules, 2017.

Distinction of situation provided via proviso to main provision of Section 50 (1) & main section itself (as well as distinction of situation of sub-rule 1 & sub-rule 2 of rule 88B) needs to be very well understood.

This is because 'ITC availability in electronic ledger' is not enough legal ground, in my view, to avoid interest under all such situations, but same is allowed only in some specific situations & that too, after fulfillment of specified conditions therein.

Facts as well as reason for doubts are not very clear from the query raised. Kindly elaborate.

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

[Deepak Bubna]

Dear Mr. Amit,

Thanks for your response. My question is elaborated in simpler words below :

A demand is raised to reverse GST due because due to obtaining OC (Occupancy Certificate) to the extent ITC was availed by the client on units sold by him post date of OC. Whereas the demand raised by the department is not under dispute, the client states that since there was already input credit available in electronic credit ledger, no interest is to be charged on such amount i.e. unused input credit lying in electronic credit ledger. Whether maintaining such ground is tenable and is valid ?

The client has carried out several jobs on above project even after obtaining OC. Whether ITC available due to such additional job can be utilized for payment of demand raised by the department ?

[ABHISHEK TRIPATHI]

Hello Deepak Ji,

You should be focusing on the availed and utilised ground. If the ITC was not utilised, you are not required to pay interest as per Section 50 r/w. Rule 88B(3).

[Amit Agrawal]

W.r.t. facts now explained by the querist in Post no. 2 above, I hold a view that section 50 (3) (& rule 88B (3)) will not apply.

This is because given situation is not that of 'credit being wrongly availed and utilised' but about credit which was due & available to the claimant as the time of availment.

Reversal of ITC / Payment of tax (which is required due to subsequent events i.e. some property could not be sold before obtaining OC (& there is no dispute about Dept's on merits as per querist)) does not make initial availment of ITC as wrong, in my view.

But, if Dept. makes case - against the client - alleging wrong availment of ITC, you can definitely try & use Section 50 (3)r/w 88B (3) to your advantage (besides, checking probability of challenging entire demand on merits, depending upon contents of SCN, nature of allegations, period of dispute and relevant provisions at that time etc).

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

[Shilpi Jain]

Rule 42 and 43 provide a time limit within which the reversal of credit has to be done. So the department would demand interest on late reversal, even if it is from the credit ledger only.

However, judicially one can try to defend that there has been no revenue loss and thereby interest should not be liable. Though this will be settled in litigation only

[Shilpi Jain]

So you could consider reversing credit and for interest, considering the amount and the cost involved a suitable decision can be taken

AI Summary

Interest on GST liability: availability of electronic input tax credit may not eliminate interest unless statutory conditions are met. Interest on GST liability is governed by Section 50 and Rule 88B; mere availability of input tax credit in the electronic ledger does not automatically prevent interest unless statutory provisos and conditions are satisfied. Where ITC was properly availed, subsequent reversal or tax payment due to later events does not necessarily make the initial availment wrongful, and time limits for reversal and departmental claims for interest on late reversal remain relevant.