In today's business environment, having access to business credit with the suppliers is of utmost importance. It enables you to cover day to day business expenses, manage working capital, hire additional staff & allows you to conserve cash in hand for unforeseen events. However, those dealers which are dealing in goods & services covered under gst are advised not to delay this credit period beyond 180 days for payment to suppliers, Why? - the reasons are mentioned below.
2nd Proviso to section 16 (2) of CGST act, 2017 provides that where a recipient fails to pay to the supplier of goods or services or both, the amount towards value of supply along with tax payable within a period of 180 days from the date of issue of invoice by the supplier. An amount equal to the input tax credit shall be added to the output tax liability of such recipient along with interest thereon.
Section 50 of CGST act, 2017 as amended by finance act, 2021 [Notification No. 16/2021 - Central Tax dated - 1st June 2021] provides that interest shall be levied on amount debited to electronic cash ledger and not on the unutilized amount of input tax credit available in e-credit ledger. Therefore, as per Rule 37 of CGST Rules, 2017 the interest as per section 50(1) [18%] is applicable till the credit is added to output tax liability to the extent it is utilized towards payment of output tax.
In simple words "The recipient of goods or services is required to pay interest only on input tax credit utilized from e-credit ledger for payment of tax & not on whole amount of input tax credit to be reversed".
- The provision does not apply to tax payable on reverse charge basis
- The value of supplies made without consideration as specified in Schedule - I shall be deemed to be paid for the purpose of section 16 (2).
- The amount included in value of supply as per section 15(2)(b) - [Amount paid to supplier on behalf of recipient] shall be deemed to be paid for the - purpose of section 16 (2).
The legislation further provides relief as specified under rule 37 of cgst rules, 2017 which provides that whenever the payment is made after the period of 180 days the input tax credit becomes eligible to be reclaimed in the respective month's GSTR 3B irrespective of provisions of section 16(4) - time limit for claiming input tax credit i.e. Date of filing annual return or succeeding year's september month GSTR 3B whichever is earlier. The loss in not complying with the above provisions is mainly the "Interest cost".
- The question arises whether the condition of matching of credit with GSTR 2A/B will apply to this input tax credit or not?
The answer to this question is simple. From 1st January 2022 onwards with the introduction of section 16(2)(aa), businesses must claim Input Tax Credit that only appears in GSTR-2B. This is the primary condition which is to be checked before claiming or reclaiming such input tax credit.
It is important to keep in mind that only for recipient the time limit for reclaiming input tax credit is ignored but the supplier must still file the invoice in GSTR 1/IFF and pay the required amount of tax in return under section 39 within time limit specified under section 16 (4).
Example
Mr. A has purchased certain goods on 1st Apr-2021 from Mr. X on credit for Rs. 1,00,000 + igst@12% i.e. Rs. 12,000 [Both of them are registered under gst].
Mr. X should file April-21 GSTR 1/IFF showing this sales to Mr. A. Mr. A is eligible to claim Rs 12,000 igst credit in April-21 GSTR 3B if such credit appears in his GSTR 2B & complying with other condition under section 16 of cgst act, 2017. However, Mr. A is unable to pay Rs. 1,12,000 till 5th Oct-2021 (more than 180 days).
In Oct-21 GSTR 3B Mr. A is required to add Rs. 12,000 igst to his output tax liability and pay interest on Rs. 8,000 for 7 months (Apr to oct) i.e. Rs. 840. Interest is paid on Rs. 8,000 because balance of e-credit ledger is Rs. 4,000 & no other amount was credit to e-credit ledger from Apr-21 to Oct-21 that means Rs. 8000 is utilized credit so interest is paid on such amount as per section 50. However, on 10th Nov-21 Mr. A has paid Rs. 1,12,000 to Mr. X therefore Mr. A is eligible to claim Rs. 12,000 input tax credit in Nov-21 GSTR 3B. If the date of payment would have been 10th Nov-22 then also Mr. A would be eligible to take input tax credit in Nov-22 GSTR 3B.
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