demand paid by debiting credit ledger- what about interest

[giri gattupalli]

respected sir,

demand order in Form DRC -07 was issued on my client amounting to Rs 10,00,000 for fy 2020-21. and tax liability shown in notice is genuine and my client ready to pay off the liability by debiting his electronic credit ledger. and the proper officer also agreed to do so.

there was credit laying in my client' s input tax credit ledger continuously right from fy 2020-21. and no cash component was used to pay tax liability. in this scenario whether there is liability to pay interest or not. please discuss

thanking you

[Amit Agrawal]

Kindly refer to discussion under Issue-ID: 118576 bearing subject-line as 'Interest on wrong ITC'.

[KASTURI SETHI]

DRC-07 is an order to pay tax either under Section 73 or 74 of the CGST Act. It is a fact that your client has not deposited tax on his own (voluntarily). If Section 73 or 74 of the CGST Act is invoked for recovery, interest will have to be paid. No benefit of ITC having sufficient balance in Electronic Credit Ledger, is available as per proviso to Section 50 of the CGST Act.

[Padmanathan KV]

What is the demand relating to?

Is it short payment of OPT?

is it excess ITC availment?

[Rajagopalan Ranganathan]

Sir,

Interest and penalty is always payable in cash only. You cannot discharge interest and penalty by debiting the credit ledger. If you take an ineligible ITC which is not utilised for payment of tax then while reversing the ineligible credit you need not pay interest while reversing the ineligible credit provided there is sufficient balance in your credit ledger for making the reversal.

AI Summary

Payment by input tax credit does not avoid interest when tax demand is recovered under assessment provisions. A tax demand under assessment provisions must be met in accordance with recovery rules; debiting the electronic credit ledger to pay assessed tax does not avoid interest, and the proviso to the interest provision does not allow using ITC to escape interest. Interest and penalty are payable in cash only and cannot be discharged from the credit ledger. For reversal of ineligible input tax credit that was not used for tax payment, no interest is required on the reversal if sufficient credit ledger balance exists to effect the reversal.