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?

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.