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 under Section 50 should run from Feb 2022 after the supplier's credit note, not from Dec 2021 Invoice dated Nov 2021 with ITC availed and used in Dec 2021, supplier issued a credit note in Feb 2022, and ITC was reversed in Dec 2022. Interest was paid for Feb-Dec 2022, but the tax authority seeks interest from Dec 2021. Legal responses note reversal obligation arises only upon issuance of the credit note, so interest under section 50 runs from Feb 2022 until actual reversal; reliance is placed on Supreme Court authority and CBIC guidance treating interest as payable only on wrongly availed and utilized ITC. No additional interest prior to Feb 2022 appears legally sustainable.