Interest on ITC correctly availed but reversed as supplier failed to remit tax to the Govt.

[Raam Srinivasan Swaminathan Kalpathi]

ITC by a client was correctly availed. Supplier did not remit tax to the Govt. FY 2020-21. Said ITC was voluntarily reversed upon receipt of audit paras from department. Is the tax payer required to also remit Interest u/s.50(3).

Said Section 50 states "Where ITC has been wrongly availed and utilised .........". In our case ITC not wrongly availed.

Request view of experts. Also, case law references would be gratefully acknowledged. Thanks

[Raam Srinivasan Swaminathan Kalpathi]

Also, OIO was passed under Sec.73.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

ITC availed and utilised is irregular in terms of Sec. 16(2)(c), where the supplier has not remitted tax. So, interest is payable. The interest is not applicable if ITC is not utilised or continuously held at credit more than the amount of ITC reversed. Unless all the conditions are satisfied u/s 16 (2) and 16(20(c) it is treated as wrong availment.

[VENU K]

Wrongly Availed and Utilised': When the ITC became ineligible due to the supplier's non-payment, its continued presence and subsequent utilization in the electronic credit ledger would constitute 'wrongly availed and utilised' credit for the purpose of Section 50(3). The retrospective application of Section 50(3) from July 1, 2017, covers the Financial Year 2020-21.

The Madras High Court, in Assistant Commissioner (ST) vs. Jayashree Enterprises 2026 (6) TMI 1208 - MADRAS HIGH COURT and Assistant Commissioner (ST) vs. Jayashree Enterprises [2026] 187 taxmann.com 948 (Madras)[17-06-2026], explicitly stated that Section 50(3) specifically addressed wrongful availment and utilization of ITC and that any availment and utilization of ineligible ITC constituted wrongful availment and utilization. The Court dismissed the writ petition, upholding the levy of interest where ineligible ITC was utilized due to a mismatch between GSTR-3B and GSTR-2A. This case underscores that the ineligibility of ITC, even if not due to the recipient's direct fault, renders it 'wrongly availed' if it is subsequently utilized.

[KASTURI SETHI]

ITC was not correctly availed. Without deposit of tax into Govt' s kitty by the supplier, the buyer has no statutory right to avail ITC. Section 16 (2) is very much clear.

[KASTURI SETHI]

ITC was not correctly availed. Without deposit of tax into Govt' s kitty by the supplier, the buyer has no statutory right to avail ITC. Section 16(2) is very much clear.

[Shilpi Jain]

Once you have accepted the tax liability, interest is automatic.

[Shilpi Jain]

Once you have accepted the tax liability, interest is automatic.

AI Summary

Input tax credit becomes irregular on supplier tax non-payment, with interest considered where the ineligible credit is utilised.
Input tax credit may be treated as irregular where the supplier has not remitted the corresponding tax to the Government, since supplier tax payment is identified as a condition of entitlement to credit. Interest is considered payable where the resulting ineligible credit has been utilised. The discussion distinguishes unutilised credit from utilised credit, indicating that interest may not arise where sufficient credit remained continuously unutilised to cover the reversal. Continued availability and utilisation of credit made ineligible by supplier non-payment may constitute wrongly availed and utilised credit.