ITC not reversed as per Rue 42 and also not utilised that portion of credit.

[Dinesh Kirubhakaran]

Good Moring All,

Issue:

ITC not reversed as per Rue 42 and also not utilised that portion of credit.

Opinion required:

Whether interest under section 50(1) or 50(3) is applicable ?

Extract of rule 42, where through the above question arises

[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-3Bor 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

Thanks in advance.

[GUNASEKARAN K]

ITC Reversible under Rule 42 not reversed and also the same was not utilized against payment of GST Liability, then there is no revenue loss to the government, and hence, no penalty or interest can be imposed on the registered person.

If that ineligible ITC adjusted against payment of your Tax Liability then Interest @ 24% p.a. applicable.

Disclaimer: This is my ex facie view and it should not be construed as professional advice or suggestion.

[KASTURI SETHI]

Sh.Dinesh Ji,

What is the period involved ? Is it before 05.7.22 or after 5.7.22 ? Pl. also peruse Notification No.9/22-CT dated 05.7.22 (effective from 05.7.22).

Reversal was required and non-reversal under Rule 42 is an offence and penalty is imposable.

My reply is incomplete in the absence of period involved.

[Shilpi Jain]

Rule 42 is worded in such a way that interest starts ticking from 1st Apr irrespective of the fact that credit is not utilised.

reversal under rule 37 for non payment up to 180 days also had a similar lacuna which got rectified in the law.

Though rule 42 lacuna not yet rectified. So looks like interest would be liable from 1st Apr irrespective of utilisation. However, one should be able to take grounds to say that interest being compensatory, when there is no loss to exchequer, interest should not apply unless utilised.

[Amit Agrawal]

No interest is payable in given scenario, in my view.

Considering the wordings used u/r 42 & unless clarified otherwise by Board, kindly expect litigation against non-payment of interest once same gets detected by Dept. And you need to be wiling to defend yourself through judicial process if need so arises.

However, if Dept. detects non-reversal of ITC, same may lead to imposition of penalty either u/s 73 or 74 for wrong availment of ITC.

Even delay in reversal of ITC (but, such reversal being voluntary & without detection from Dept.) can invite general penalty u/s 126 subject to Section 126.

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

[Dinesh Kirubhakaran]

Thank you Gunasekaran Sir, Kasturi Sethi Sir, Shilpi Jain Mam, Amit Agrawal Sir for all your views, in case interest applicable whether it shall be chargeable under Sec 50(1) or 50(3)CGST Act,

Because as per the Rule "interest on the said excess amount at the rate specified in sub-section (1) of section 50" they are mentioned about the rate as specified in Sec 50(1) of the CGST Act, not interest as perSec 50(1) hence my view is being rule 42 is emerged from Sec 17, hence this is related ITC reversal hence Sec 50(3) may applicable. And another view is being there are two rates mentioned in Sec 50 i.e 50(1) having 18% and 50(3) having 24%, hence sec. 50(1) is not a charging section, only we have to see Sec 50(1) for rate purpose.

And in that situation, if interest is chargeable u/s 50(3) then interest will applicable only on utilisation of that universal credit. This is my view, like to know all your view too. Thank you.

[Padmanathan KV]

I am also of opinion that interest is not required to be paid.

As pointed out by Shilpi Ma'am, the wording of Rule 42 indicated that interest under section 50(1) is triggered from 1st April. However, interest under section 50(1) is leviable only when taxpayer "fails to pay tax or any part thereof". In this case, there is no such failure. Hence, in my view, interest will not get levied even though Rule 42 triggers it.

AI Summary

Interest on reversed input tax credit under rule 42 may be triggered, creating dispute over the applicable interest provision. Whether interest is payable when input tax credit reversible under Rule 42 is not reversed and remains unutilised. Rule 42 directs reversal and states interest at the rate specified in the first sub section of the interest provision accrues from the first day of April until payment. Commentators are split: some argue no interest absent utilisation or revenue loss, others read Rule 42 as triggering interest from the accrual date irrespective of utilisation and warn of penalties for non reversal and wrong availment.