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-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

Thanks in advance.

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.