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?

AI Summary

Manual inflation of ITC in GSTR-3B Table 4A(5) to pay June tax triggers 18% interest, reversal treatment Manual inflation of ITC in Table 4A(5) to discharge June output tax is treated as wrongful availment and utilisation of credit not reflected in GSTR-2B for that period, attracting interest at 18% from the June return filing date until the corresponding eligible ITC becomes available in GSTR-2B and is validly availed. Subsequent reversal of such excess credit through Table 4B(2) results in the reversed amount reflecting in the electronic credit reversal/reclaimed statement, creating a need to determine whether it should remain as a pending reversal entry or be reclaimed and, if ineligible, reversed through appropriate permanent reversal reporting (e.g., Table 4B(1) or Table 4D(2)), affecting the credit balance and future utilisation.