Applicability of ITC reversal as per S.16(2)

[Pradeep Singhi]

We are providing works contract services to the government. After getting the contract/tender from government, we sub-contract the work to the sub-contractor. All the terms and conditions agreed upon with the sub-contractor are same as agreed with government.

We have the following queries with regards to the same:

1. Whether ITC reversal is applicable as per S.16(2) (provision of 180 days), if we withhold the money of our sub-contractor which are in the nature of security deposit and which are paid back to the sub-contractor as and when government release our security deposit ?

2. Whether ITC reversal is applicable as per S.16(2) (provision of 180 days), if we deduct the money of our sub-contractor which are in the nature of charges (testing charges, cement mix charges, etc.) ?

Notes:

1. Sub-contractor pays the GST on Total Taxable value (including the charges deducted by us)

2. Above mentioned deduction of charges and deposits are as per the terms and conditions of the contract.

AI Summary

Input tax credit reversal rules: security deposits are not consideration, but deducted charges form transaction value.
Security deposits retained by a contractor pending government release are not consideration and do not require ITC reversal under the 180 day proviso, whereas contractually deducted charges (testing, cement mix, etc.) form part of the transaction value and must be included by the subcontractor in its taxable value. The 180 day rule applies primarily to normal trade payables; pre agreed extended payment terms documented before supply may prevent characterization as failure to pay within 180 days. There is a debated view that statutory interest under the general provision is not applicable to reversal mandated by the proviso, given amendments to the reversal rule and the distinction between reversal and wrongly availed credit.