Interest on wrong ITC

[Kaustubh Karandikar]

XYZ had wrongly availed credit of IGST. The same was reversed but without paying interest since, even though there was no ITC balance in IGST account to cover the wrongly availed ITC, there was sufficient balance in CGST + SGST to cover the same. Is the GST audit team right in demanding interest since no balance in IGST even though sufficient balance in CGST + SGST? Any possible defence?

[Padmanathan KV]

A. XYZ has wrongly availed ITC of IGST say Rs.1,00,000/-.

B. This Rs.1,00,000/- might have been utilized by XYZ against payment of tax.

C. That would be the reason why XYZ does not have balance in IGST ledger.

D. However, XYZ has sufficient balance in CGST and SGST

Rule 88B (3) - In case, where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with sub-section (3) of section 50, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub-section (3) of section 50.

Explanation. -For the purposes of this sub-rule, -

(1) input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.

(2) the date of utilisation of such input tax credit shall be taken to be, -

(a) the date, on which the return is due to be furnished under section 39 or the actual date of filing of the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or

(b) the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other cases.

From above, in my personal opinion is that IGST wrongly availed has been utilized and interest need to be paid from that day onwards. I.e. In my view, each head has to be separately seen. I am open to difference of opinion.

[Amit Agrawal]

I respectfully disagree Shri Padmanathan Ji due to the following:

1. Revised Section 50 (3) of the CGST Act, 2017 (amended retrospectively w.e.f. 01.07.2017) reads as follows:

"Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four per cent. as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed."

2. sub-rule (3) of Rule 88 B reads as follows:

"In case, where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with sub-section (3) of section 50, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub-section (3) of section 50.

Explanation. -For the purposes of this sub-rule, -

(1) input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.

(2) the date of utilisation of such input tax credit shall be taken to be, -

(a) the date, on which the return is due to be furnished under section 39 or the actual date of filing of the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or

(b) the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other cases."

3. “input tax credit” means the credit of input tax, as per Section 2 (63) of the CGST Act, 2017.

4. Relevant portion of Section 2 (62) of the CGST Act, 2017 reads as follows:

"“input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes– ................. ........................"

5. Your attention is also invited to Section 49 (2) read with Section 41, 2 (46) of the CGST Act, 2017 & Rule 86 of the CGST Rules, 2017 .

6. There are some rules (For example: Rule 44 (2)) which requires "separate" calculations for input tax credit of central tax, State tax, Union territory tax and integrated tax, but Rule 88B (3) does not put any such conditions.

7. In view of above read with fact of your case, I hold a view that no interest is payable in given scenario under discussion here.

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

[Ashika Agarwal]

I agree with the view of Amit Sir.

Further, utilisation of IGST may have happened due to the order of utilisation provided in the Act

[Kaustubh Karandikar]

Thanks all the experts for your valuable insight in to the issue.

[Amit Agrawal]

Just to add to my last post, it is worth noting that FORM GST PMT-02(i.e. The electronic credit ledger) has a column showing 'total' (i.e. total of four heads of credit under IGST, CGST, SGST / UGST (as the case may be) & Cess) for debit / credit of ITC as well as for showing 'Balance available'.

[Padmanathan KV]

Ld. experts,

A. Assuming XYZ is registered in Maharashtra State.

B. The IGST wrongly availed being exhausted and having sufficient CGST + MGST balance would arise only in the following situation (assuming, after the amendment to utilization rules):-

IGST credit wrongly availed has been utilized against IGST liability first and the CGST and MGST credit (correctly availed) would be remaining unutilized.

(as it is not possible to utilize IGST against CGST and SGST first without utilizing CGST and SGST against respective head)

C. Assuming, the IGST credit wrongly availed was used to set of IGST liability having PoS as Kerala.

D. Now the loss of revenue due to the wrong availment of IGST is actually suffered by the State of Kerala (50% Kerala and 50% suffered by Centre).

E. Whereas, XYZ is having unutilized ITC of CGST and Maharashtra GST.

F. In this case, if XYZ does not pay interest on IGST, how will State of Kerala Compensated for its share of loss up to date of reversal?

Pls correct me if I am wrong. Just to gain clarity and academic knowledge!

[Amit Agrawal]

Dear Shri Padmanathan Ji,

On your last post, my views are as follows (Please treat this a pure academic discussion):

I do not agree with your statement that in scenario described by you, "Now the loss of revenue due to the wrong availment of IGST is actually suffered by the State of Kerala (50% Kerala and 50% suffered by Centre)".

A. As PoS is Kelara and transaction is inter-state, Central Govt. got entire revenue of taxes (i.e. IGST) and distribution of that tax will take place as per agreed formula by Centre with State of Kerala. Mode of payment (through utilisation of ITC or cash) does not affect taxes of recipient state.

A1. Similarly, any recovery by Govt. against wrongly availed credit (say, penalty u/s 78 or interest (if payable) besides ubnderlying tax under dispute), state of Kelara will not get any share. All these credits are available to TP as 'Supply Recipient' where PoS is 'State of Maharashtra' (generally speaking & ignoring controversies thereof). Hence, all these benefits (against recoveries) will go Centre & state of Maharashtra, though under which Act, these recovery will take place is matter of dispute under GST, in my view.

B. In my view, for purpose of rule 88B (3), the tax-payer (i.e. TP) who is registered in Maharashtra, has taken wrong credit under head 'IGST' and said ITC is so availed by TP in all three Acts (i.e. IGST, CGST & MGST). In other words, ITC so availed is not in any particular act.

C. Similarly, for purpose of rule 88B (3), said ITC has taken ITC (correctly) under head of CGST & SGST and these ITCs are also availed by him on all three acts listed above and not under any particular Act.

D. Against all ITC claimed by said TP in all three acts, 'balance of credit' available (in total) never fallen below 'wrong availed ITC' and hence, no interest is payable in view (which is explained in more details in my post above at serial No. 2).

E. Now, coming to controversy part - touched by me in Para A1 earlier, please note the followings:

Following questions arises on broader level of discussion (i.e. ignoring limited subject matter is of ITC under the head 'IGST' but taking case of ITC wrongly availed under any of 3 heads):

A. Whether TP had wrongly "availed" ITC under any particular Act i.e. IGST Act, CGSTAct or SGST Act, 2017? And what is legal basis / criteria of such determination?

B. Whether TP had wrongly "utilised" ITC under any particular Act i.e. IGST Act, CGSTAct or SGST Act, 2017? And what is legal basis / criteria of such determination?

C. Is it legally possible that TP had wrongly "availed" ITC under one Act, but wrongly "utilised" it under different Act? And if yes, how SCN should be issued?

And so on .....

Please note that I have not shared any legal views as such in this post (except elaborating my reasoning behind my earliest post at serial no. 2 above and Para A & A1 as answers to your post at serial No. 6), but tried to explain that there are so many areas of conflicting possibilities, further complicated from the fact that the evolving legal jurisprudence of gst provisions / rules are still at their nascent stage.

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

[Padmanathan KV]

Ld Amit Ji,

Thank you so much for your in-depth analysis sir. Simply excellent post sir. Saving for future reference.

Thank you Ld Kaustub Ji so much for coming out with interesting and controversial queries. A lot to learn from each query by you.

[Amit Agrawal]

You are welcome, Shri Padmanathan Ji!

You are right ... Shri Kaustubh Ji keeps us engaged & busy by raising interesting & controversial issues!

[KASTURI SETHI]

Dear Sir,

Whenever Final Audit Report (Form GST-Audit-2) is issued, please post major contents here.

[Kaustubh Karandikar]

thanks all for the valuable views with justification. These are all live examples which i come across and sharing with you for your kind advice.

[Shilpi Jain]

There is also a circular in the context of refund which has clearly stated that the refund amounts will be calculated as per the provisions of rule 89 for each head of ITC.

In case as per this calculation, even if the entire refund is to come from IGST, when the debit from the electronic credit ledger is required to be done, it has to be done in the following order: IGST, CGST/SGST/UTGST, equally. (para 37 of Circular 125/2019-GST). Thus, even if IGST credit balance is not existing at the time of debit from credit ledger, can be adjusted from the other heads ie CGST SGST and UTGST.

The above shows that even if there is no balance in IGST credit ledger, refund can be claimed by adjusting credit from the other heads.

Thus, the department is also looking at ITC as one number instead of considering ITC under separate heads separately.

Thus, it can be noted that credit should not be looked separately under each of the heads i.e. IGST CGST and SGST. Entire credit has to be considered as one component to ascertain whether interest is applicable or not.

[Kaustubh Karandikar]

Shilpi ji, your further addition will definitely help to defend the issue and thanks a lot for the same.

[Amit Agrawal]

In continuation to subject matter under discussion here, please note the following recommendations of 50th meeting of GST Council, as per press release dated 11.07.2023:

"8. Issuance of the following circulars in order to remove ambiguity and legal disputes on various issues, thus benefiting taxpayers at large:

1. .......................
2. Clarification regarding the manner of calculation of interest amount liable to be paid under section 50(3) of CGST Act, 2017in respect of wrongly availed and utilized IGST credit, clarifying inter alia that in cases of wrong availment of IGST credit, the balance of input tax credit (ITC) in electronic credit ledger, under the heads of IGST, CGST and SGST taken together, has to be taken in consideration while calculating such interest liability as per rule 88B of CGST Rules, 2017."

Note (as given at the end of above-said Press Release): The recommendations of the GST Council have been presented in this release containing major item of decisions in simple language for information of the stakeholders. The same would be given effect through the relevant circulars/ notifications/ law amendments which alone shall have the force of law.

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

AI Summary

Debate on Interest Payable for Wrongly Availed IGST Credit with Sufficient CGST/SGST Balance; GST Rules Examined A discussion on a forum addressed whether interest is payable on wrongly availed input tax credit (ITC) of IGST by a company, despite having sufficient balance in CGST and SGST accounts. The GST audit team demanded interest, arguing that the IGST balance was insufficient. One participant argued that interest is due when the electronic credit ledger balance falls below the wrongly availed ITC amount. Another disagreed, citing that the law does not require separate calculations for different tax heads, suggesting no interest is payable. The discussion included references to GST rules, potential defenses, and recent GST Council recommendations.