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 liability on reversed ITC limited to period from credit note issuance, earlier interest demand unsustainable.
Interest on reversed ITC arises only for the period during which the credit was wrongly availed and utilized after the event triggering reversal. Where a supplier issued a credit note in February 2022 and ITC was reversed in December 2022, interest should be computed from issuance of the credit note until actual reversal; demands for interest from the earlier date of availment are unsupportable under the cited authority and administrative guidance.