interest lability on ITC when payment to supplier is made after 180 days

[Rajat Gupta]

Hello, one of my client's purchased goods and availed ITC in October 2018. But he made the entire payment to the supplier only in FY 20-21. My query is in which financial year can the revenue officer raise SCN for interest in this case? Should it be FY 19-20 where the period of 180 days is over or till the period payment is made in full settlement?

[Amit Agrawal]

First, IMHO, then prevailing second proviso to Section 16(2) of the CGST Act, 2017 read with Rule 37 of the CGST Rules, 2017 are NOT sufficient to demand ITC reversal or interest in given situation by the querist. 

Second, w.r.t. specific query raised & ignoring my views above, relevant period to issue SCN is FY 2019-2020 if Dept. insists on demanding interest in given situation in my humble view. This is with the understanding that prescribed period of 180 days lapsed in FY 2019-2020.  

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

[Amit Agrawal]

One may also refer to discussion we had under Issue Id: 118960 bearing subject-line as 'Applicability of ITC reversal as per S.16(2)'. 

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

[KASTURI SETHI]

(i)  A  SCN can be issued after the expiry of a period of 180 days. 

(ii) Interest liability arises from the date of issue of the invoice by the supplier to the date of making full payment including tax to the supplier. (Prior to 1.10.23, an amount equal to ITC availed was required to be added to output tax liability of the recipient).

(iii)  Hence recurring SCN will continue to be issued  till the entire amount is paid in full i.e. up to  the period 20.21 in this situation, if the SCN is issued in the year 19-20. 

[Shilpi Jain]

SCN can be issued in the year in which 180 days expire

AI Summary

Interest liability on input tax credit: SCNs may issue after the prescribed period, with interest running until full payment.
Interest liability on availed input tax credit arises when payment to the supplier is not made within the prescribed period; a show cause notice may be issued in the financial year in which that period expires. Interest is regarded as accruing from the invoice date until full payment including tax is made, and demands may continue until full settlement of the supplier liability.