Interest on 'ITC reversed through DRC-03 partly in cash and partly from credit ledger'

[Assistant Manager]

Dear experts,

We had taken excess ITC during 2017-18 but the said ITC was always remain in our credit ledger. During the year 2019-20, the said ITC is reversed through DRC-03. Instead of reversing the whole amount of ITC from credit ledger, assessee has reversed some amount in cash.

Whether interest is required to be paid on cash reversal of ITC as assessee had sufficient balance of ITC in their credit ledger and the same was never utilised but wrongly reversed some ITC from cash ledger?

[Shilpi Jain]

There should not be an interest liability since you always had the credit balance until reversal.

THough curious to know why a part of it was reversed in cash ledger?

[Assistant Manager]

But department is demanding interest on cash reversal of ITC. Is it correct?

There may be two reasons:

1. Due to lack of knowledge, accountant reversed the part amount in cash, or

2. At that time, Circular 192/04/2023-GST dt. 17.07.2023 was not in existence.

[KASTURI SETHI]

  Interest is not payable.

(i)  Clarification is always applicable from the date of issuance ----- in the case of  AAKAVI SPINNING MILLS PVT. LTD. Versus  AUTHORITY FOR CLARIFICATION AND ADVANCE RULING, CHENNAI - 2017 (12) TMI 1013 - MADRAS HIGH COURT. 

(ii) The department will issue SCN.

(iii) The issue is worth fighting.

(iii) If ITC is not utilised, there is no revenue loss. Hence interest for what ?

(iv) Only a procedural or technical lapse.

[Assistant Manager]

Thanks to all for your valuable suggestions.

[Ganeshan Kalyani]

I agree with the view of the experts.

AI Summary

Interest on Unused ITC Reversal: Experts Say No, Department Demands Yes; Unused Credit Sparks Debate An assistant manager raised a query regarding whether interest is payable on the cash reversal of excess Input Tax Credit (ITC) from the GST credit ledger, which was never utilized. Experts responded, suggesting that interest should not be required since the credit balance was maintained until reversal. The department, however, is demanding interest. The assistant manager speculated that the reversal in cash might have been due to a lack of knowledge or absence of relevant circulars at the time. Contributors agreed that if the ITC was not utilized, there is no revenue loss, thus no interest should be payable.