Interest on Reversal of ITC.

[PRAVIN TALEGAONKAR]

Dear All,

We have taken ITC during 2022-23 and now we want to reverse the same. We have ITC balance higher than amount to be reversed in credit ledger.

Now my question whether Interest is applicable on amount reversed during current month.

Regards,

Pravin Talegaonkar

[Kiran Tahelani]

Please refer Circular 192/2023. Relevant para of the same is reproduced as under:

Thus, in the cases where IGST credit has been wrongly availed and subsequently reversed on a certain date, there will not be any interest liability under sub-section (3) of section 50 of CGST Act if, during the time period starting from such availment and up to such reversal, the balance of input tax credit (ITC) in the electronic credit ledger, under the heads of IGST, CGST and SGST taken together, has never fallen below the amount of such wrongly availed ITC, even if available balance of IGST credit in electronic credit ledger individually falls below the amount of such wrongly availed IGST credit. However, when the balance of ITC, under the heads of IGST, CGST and SGST of electronic credit ledger taken together, falls below such wrongly availed amount of IGST credit, then it will amount to the utilization of such wrongly availed IGST credit and the extent of utilization will be the extent to which the total balance in electronic credit ledger under heads of IGST, CGST and SGST taken together falls below such amount of wrongly availed IGST credit, and will attract interest as per sub-section (3) of section 50 of CGST Act, read with section 20 of Integrated Goods and Services Tax Act, 2017 and sub-rule (3) of rule 88B of CGST Rules.

Hope this will suffice.

[KASTURI SETHI]

As per Section 50(3) of CGST Act, interest is to be paid only when ITC has been taken and utilized.

Have you kept sufficient balance (i.e. more than the amount to be reversed) in Electronic Credit Ledger through out the year 22-23 ?

Are you sure that you have not utilized ITC taken wrongly ?

[Amit Agrawal]

If ITC wrong availed is reversed before its utilisation, interest is not payable u/s 50(3) of the CGST Act, 2017 read with Rule 88B(3) of the CGST Rules, 2017.

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

[Padmanathan KV]

I agree with views of experts, no interest can be levied where ITC was availed wrongly but not utilized. Circular referred by Kiran Ji is also relevant.

[PRAVIN TALEGAONKAR]

Thanks

[Ganeshan Kalyani]

The balance in the Electronic Credit Ledger from the month in which ITC was availed during year 2022-23 till the date of reversal should be more than the ITC which you now reversing. Then it will mean that you have availed ITC but it was not utilised. You will have to download Electronic Credit Ledger from GST portal and check with the ITC that you are going to reverse now. This working you can keep it as a back up for the reversal so that it can be produced whenever the reversal is enquired about.

[KASTURI SETHI]

Credit reversed prior to utilisation amounts to credit not taken -----------Supreme Court in the cases pertaining to pre-GST era.

[Amit Agrawal]

W.r.t. Supreme Court in the cases pertaining to pre-GST era, one may refer to UOI AND ORS. VERSUS IND-SWIFT LABORATORIES LTD., as reported in 2011 (2) TMI 6 - SUPREME COURT, wherein it was held as under:

"Interest on wrong cenvat credit – period for which interest is payable - . A statutory provision is generally read down in order to save the said provision from being declared unconstitutional or illegal. Rule 14 specifically provides that where CENVAT credit has been taken or utilized wrongly or has been erroneously refunded, the same along with interest would be recovered from the manufacturer or the provider of the output service. The issue is as to whether the aforesaid word "OR" appearing in Rule 14, twice, could be read as "and" by way of reading it down as has been done by the High Court. If the aforesaid provision is read as a whole we find no reason to read the word "OR" in between the expressions Taken' Or utilized wrongly' or Has been erroneously refunded' as the word "and". On the happening of any of the three aforesaid circumstances such credit becomes recoverable along with interest.

the attempt of the High Court to read down the provision by way of substituting the word "OR" by an "and" so as to give relief to the assessee is found to be erroneous. In that regard the submission of the counsel for the appellant is well-founded that once the said credit is taken the beneficiary is at liberty to utilize the same, immediately thereafter, subject to the Credit rules. - . In the present case the order of the Settlement Commission clearly indicates that the said order, particularly, with regard to the imposition of simple interest @ 10 per cent per annum was passed in accordance with the provisions of Rule 14 but the High Court wrongly interpreted the said Rule and thereby arrived at an erroneous finding."

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

[PRAVIN TALEGAONKAR]

Dear All.

We are reversing ITC taken during the 2022-23 and 2023-24.

My question is whether reversal amount shall be added in Outward Liability in column of 3.1 of GSTR-3B or in column 4B (2) of GSTR-3B.

As I know reversal amount shall be added in Outward Liability in column 3.1 of GSTR-3B

We need your valuable advice.

Regards

Pravin Talegaonkar

[Padmanathan KV]

Dear Pravin,

In my opinion, it must be declared in Table 4(b)(2) others.

Views are personal.

[Shilpi Jain]

If reversal is a permanent reversal i.e. you do not intend to take a re credit, disclose in table 4B(1).

[Sadanand Bulbule]

Dear all

Please refer the following as well:

2024 [7] TMI 239- GUJARAT HIGH COURT - ARYA COTTON INDUSTRIES & ANR. VERSUS UNION OF INDIA & ANR.

[Sadanand Bulbule]

Recommendation of 53rd GST Council meeting:

To ease the interest burden of the taxpayers, GST Council recommends not to levy interest u/s 50 of CGST Act in case of delayed filing of return, on the amount which is available in Electronic Cash Ledger (ECL) on the due date of filing of the said return.

AI Summary

Interest on wrongly availed ITC applies only where aggregate ledger balances show utilisation before reversal. Interest on wrongly availed ITC is payable only if the aggregate balance in the electronic credit ledger across IGST, CGST and SGST falls below the wrongly availed amount, because that shortfall constitutes utilisation; if the reversal occurs before any such utilisation and the combined ledger balance never fell below the amount, no interest under the statutory interest provision is attracted. Taxpayers should retain ledger downloads to evidence non utilisation, and disclosure in returns should follow practice for either ''others'' or permanent reversal adjustment lines as applicable.