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

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.