We have received the order against our SCN and in the same, the officer has denied our input tax credit as it was not recorded in service tax returns. The input tax credit invoices are of December 2016 and January 2017. My question is, from when do we calculate the interest on the denied ITC and at what rate? I believe there's two rates for paying service tax interest. (24% if service tax is collected and not paid and 15% if service tax not collected and not paid). In which situation do we exactly fall?
09 July 2024
In your situation, the calculation of interest on denied Input Tax Credit (ITC) under GST is guided by the provisions of the GST law. Here’s how it generally applies:
### Interest Calculation on Denied ITC:
1. **Applicable Rate**: According to GST law (Section 50), interest is levied on any tax or input tax credit that is paid after the due date. The applicable rates are as follows: - **For cases where tax is collected but not deposited**: Interest rate is generally 18% per annum. - **For cases where tax is not collected**: Interest rate is generally 24% per annum.
2. **Scenario Clarification**: - **Service Tax Collected but not Paid**: If your situation involves input tax credit on invoices where service tax was collected but not paid (which seems to be the case since the officer mentioned it was not recorded in service tax returns), the interest rate applicable would typically be **18% per annum**.
3. **Calculation Start Date**: - Interest on the denied ITC would generally be calculated from the due date of filing the return for the period in which the ITC should have been availed. For GST, this is typically the due date of filing GSTR-3B for the relevant tax period.
4. **Action Steps**: - Review the order received against your Show Cause Notice (SCN) to confirm the exact reasons for denial of ITC and the officer's determination regarding interest. - Calculate the interest from the respective due dates using the applicable rate (18% per annum in case of tax collected but not paid). - Prepare to comply with the order by paying the denied ITC amount along with interest calculated.
### Consultation with a Tax Professional: Since GST laws and their interpretations can be complex, especially in specific cases like yours involving service tax transition and ITC denial, it's advisable to consult with a qualified tax professional or GST expert. They can provide detailed advice tailored to your specific circumstances, review the order and implications, and assist in accurately calculating the interest and complying with the requirements.
By ensuring compliance with the interest payment timelines and rates, you can mitigate further penalties and issues related to the denied ITC.
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