Excess ITC availed & subsequently reversed. Please help.

[Abhishek Mishra]

TP is beverages trader (40% GST).

In June his major suppliers didnt file their GSTR-1 which led to very little ITC available in TPs GSTR-2B. This created a massive GST liability of 20Lacs (due to high GST rate of 40%). TP being a small trader had no way to pay this huge liability. So Table 4A5 'all other ITC' was manually inflated to enable paying this liability.

In next month the suppliers filed the missing GSTR-1 & TPs GSTR-2B reflected the missing ITC. Since such ITC was already availed in previous month, it was reversed in table 4B2 ('for temporary & inadvertently availed ITC reversals'). 

Now this reversed ITC has flown to ECRRS & still lying there.

Q1. What should be done to remove this ITC from ECCRS?

Q2. Will there be interest implications too?

Q3. Of course as per the law the massive liability of 20lacs was to be paid in June itself by TPs own funds due to suppliers mistake, even if it meant going bankrupt. What is ur advise in such situations?

[Sadanand Bulbule]

The manual inflation of ITC constitutes "wrongful utilization," making the trader liable for 18% interest from the date of June filing until the genuine ITC actually became available in the GSTR-2B. Future liquidity risks should be mitigated by withholding the tax portion of payments to suppliers until they successfully upload invoices to the portal.

[Abhishek Mishra]

Thanks.

The suppliers demand 100% payment before releasing goods.

Anyways my main confusion is should this ITC be left in ECRR statement forever or should it be reclaimed & reversed permanently through Table 4B1 or 4D2?

[Shilpi Jain]

Dont reverse this ITC. Ideally in Jul month return you should have reduced your ITC in 4A5 and not reversed it in 4B.

Its existence in ECRR can be ignored since if questioned by department you will be able to explain the reason.

Additionally you will have to pay 18% interest liability.

Since credit was revesed, you could consider making an intimation to the department regarding the factual situation.

AI Summary

Manual ITC boost in GSTR-3B despite missing GSTR-2B entries; later adjustment allowed, 18% interest for wrongful use period Wrongful availment and utilisation of input tax credit is described where ITC was manually increased in GSTR-3B Table 4A(5) despite non-reflection in GSTR-2B due to suppliers' delayed GSTR-1, thereby discharging output tax liability using ineligible credit. The suggested correction is not to treat the later matching credit as a 'temporary/inadvertent' reversal under Table 4B(2), but to adjust the originally inflated ITC by reducing ITC claim in the subsequent return, with the electronic credit reversal register balance being left as-is or supported by an intimation if required. Interest at 18% is stated to be payable for the period of wrongful utilisation until the eligible ITC became available in GSTR-2B.