Interest liability on ITC reversal due to credit note

[Aap Consulting Pvt. Ltd.]

Dear Experts,

Please guide. 

Invoice received in - Nov 2021

ITC availed and utilized in - Dec 2021

Credit note issued by supplier in Feb 2022

ITC reversed in Dec 2022

We have already paid interest from Feb 22 to Dec 22; however, the department is seeking interest from date of availment and utilization of ITC ie. Dec 21

As per my understanding, the ITC became reversible only after issuance of credit note, hence no interest liability for the period prior to issuance on Credit Note.

Also technically the entire tax was deposited in governments account in Dec 21 only and the supplier reduced the tax liability (pertaining to credit note amount) only in Feb 22.

AI Summary

Interest on wrongly availed ITC starts from credit note issuance, not original availment, under GST Section 50 guidance Invoice received Nov 2021, ITC availed/used Dec 2021, supplier issued credit note Feb 2022, ITC reversed Dec 2022; taxpayer paid interest Feb-Dec 2022 but tax authority demands interest from Dec 2021. Forum responses state reversal obligation and interest liability arise only from credit note issuance (Feb 2022), so interest from the date of availment is not payable; reliance on relevant case law and tax board circular supports interest being payable only on wrongly availed and utilized ITC, making the department's demand for interest from Dec 2021 unsustainable.