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 ITC reversal may not be payable where credit ledger balance remained unused despite partial cash reversal. Whether interest is payable where excess Input Tax Credit was reversed partly by cash despite an available unused credit ledger balance. The principal argument is that no interest should attach because the ITC remained unutilised and there was no revenue loss; the cash reversal is a procedural lapse. The department may nevertheless issue a show-cause notice and invoke interest on the cash component. Reliance can be placed on administrative clarification applying prospectively from its issuance and on contesting assessments that allege interest where no utilisation or revenue loss occurred.