Rate of interest on Reverse ITC

Page no : 2

Pankaj Rawat (GST Practitioner) (55057 Points)
Replied 29 April 2020

I have different opinion on above :
If we carefully read the wording of Sub Section (1) of Section 50 of CGST Act "Every person who fails to pay tax on accordance with the provisions of this Act"
Now how the Tax liability is determined in GST , It's Output Tax less Input Tax (Ouput-Input) So the section 50(1) is invoke only when net tax payable is not paid within due date .
And As per query the Ineligible ITC being wrongly claimed as eligible ITC. means the taxpayer has not default in net tax liability infact he has wrongly claimed the ITC for which he was not eligible.
Moreover many taxpayer dont even report the Ineligible ITC (Sec 17(5)) in GSTR 3b , ...... , so any wrongly claimed ITC attracts interest @ 24%

Now come to Section 50(3) "Undue or Excess claim of ITC" means" Not Reasonable ITC (Ineligible) or Excess ITC" & if you are quoting Section 42,43 in this regard then everyone knew that both the section have not been applicable till date , so it means that the interest u/s 50(3) shall not be applicable.

So in my view in both the condition interest is leviable @ 24%

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CA Altamush Zafar (GST Consultant) (15986 Points)
Replied 29 April 2020

Do yoi assume that any wrongly availed itc attracts 24% or is there a provision in the law?

1 Like

Pankaj Rawat (GST Practitioner) (55057 Points)
Replied 29 April 2020

Yes , if any wrongly availed ITC or any lowered declare output tax , both attracts Interest @ 24% (If read Section 50(2) 42,43)

And if we read Section 50(1) CGST Act , it's emphasis that interest @ 18% is applicable only on Net Tax Liability. (Or Tax Due).

You have replied that Section 17(5) not applies hence the interest rate is 18% , but can you tell me one thing if suppose the tax payer has wrongly claimed ITC which he supposed to reverse under 17(5) in form GSTR 3B , how one (officer) can know that excess ITC which is wrongly availed , actually need to be Reversed u/s 17(5) , the default is only that Excess ITC being availed.

CA Altamush Zafar (GST Consultant) (15986 Points)
Replied 29 April 2020

Availing ITC which was ineligible and reversing it is one thing and paying interest is another. The only question is under which provision is interest of 24% is to be charged where the supplier has shown in its GSTR-1 and the same is reflecting in GSTR-2A, so there is no mismatch but the ITC itself is ineligible and it is availed.

There is no section in the act therefore interest of 24% cannot be charged.

In the present case the taxpayer has used ineligible ITC to pay his tax liability. Therefore in essence tax has not been paid and therefore rate of 18% shall be charged.

There is a general misconception in the industry since inception of the law that interest on tax is 18% and on ITC it is 24%. This is wrong.

Laws are not read on the basis assumptions or misconceptions or rumors. It is read by what is written in it.

If there is no provision dealing with interest on just availing of ineligible ITC and not utilising it, a provision will have to be inserted by amending the act. Otherwise it is also a possibility that interest could not be charged in this case as no provision exists.

Pankaj Rawat (GST Practitioner) (55057 Points)
Replied 30 April 2020

Dear Altamush
I cannot understand that after reading the Section 50 of CGST Act how one cannot distinguish subsection (1) & (3) , it's clarify prescribed therein that at what default the Interest 18% & 24 % is applicable. Any how ...

It's clearly prescribed under rule 34(6) & further clarified in Circular 123/42/2019 the determine ITC Ineligible ITC need to be deducted from Total ITC reflected in GSTR 2A. Moreover taxpayer ask for B2C invoices in case where ITC is not available to him .

Interest Applicability is completely & directly depend upon the : ITC wrongly claimed, Output wrongly declared short, Tax not being deposited by due date .

And there is no Misconceptions among industries , it' is as clear as crystal . The law cannot be written line by line that what rate of interest need to charge when ineligible ITC wrongly availed & so on. (every situation cannot be written)

If suppose GSTR1,2,3 have been implemented then you would still have opinion that 18% rate is applicable on wrongly claimed ITC ....... The core objective of GST implementation is matching system , the credit is available when output of Supplier match with Input of Receptient.

So Iam very much clear on what law says & my reply to query is also according to the law. But I will request you to refer the section carefully once again.

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Pankaj Rawat (GST Practitioner) (55057 Points)
Replied 30 April 2020

***** It's Section 36(4)

Pankaj Rawat (GST Practitioner) (55057 Points)
Replied 30 April 2020

*** to determine ITC , ineligible ITC need to be deducted.......

CA Altamush Zafar (GST Consultant) (15986 Points)
Replied 30 April 2020

Now first things first. It is rule 36(4) Rule 36(4) doesn't have a guiding section and it is ultravires the act to some extent. Circulars are instructions to the department and not to the people at large. They can be challenged that is why circulars cannot interpret the law. There are numerous court cases. They just provide the intention of the department. Maximum circulars are procedural therefore it doesn't matter in those cases as they are not interpreting the law. And again I am saying taking ineligible credits and reversing it is one thing and paying interest on it is another thing. You have to reverse what is not allowed. But as far as the interest is concerned nothing is mentioned for this case. And yes law has to be written line by line or atleast empower the rules to have that provision. Neither the rules nor the act has any provision of interest in this circumstance. Just to give an example service tax before 2012 had each service enumerated which will be taxable and there are many cases where they argue that whether the services provided got covered in the enumerated list. But as it was getting difficult to specify each service they amended the law that all services will be taxable except negative list. So my point is they have to write the law line by line. If section 50(3) was generally written that interest on all reversals of itc shall be chargeable. It would have been a blanket cover. But they have actually specified only two sections. That is a specific provision that is why it will cover only those two situation and nothing else. As far as the contention of taking b2c invoices are off the point as these don't happen on organised sectors. They take b2b invoices only as the priority are books of accounts. So as per me if one has taken ineligible itc and utilises it 18% as he has not paid the taxes. If claimed ineligible itc and doesn't utilises it no provision of interest either in acr nor in rules covers this situation.

Pankaj Rawat (GST Practitioner) (55057 Points)
Replied 02 May 2020

Dear

But those 2 section , Section 42, 43 are not in force as of today. so that means rate of interest 24% will not applicable in claiming wrong ITC ??

In my earlier reply I quoted the circular & Rule 36(4) only , how to compute eligible ITC . (Any ineligible ITC reflected in 2A need to be deducted first )

Yes I knew that rule 36(4) is just impose on taxpayer for revenue collection by govt. & it's corresponding section 43A is not yet effective.

So as per you rate of 24% interest is not applicable on wrongly availed ITC ??

CA Altamush Zafar (GST Consultant) (15986 Points)
Replied 02 May 2020

Where wrongly availed ITC is utilised for paying taxes, it is quite obvious that taxes are not paid therefore 18% interest chargeable.

As far as availing wrong ITC is concerned whether there is any provision in law charging interest on it @ 24%? Draw conclusions according to your findings.

As far as I have studied I found no provision charging interest @ 24% on wrongly availed ITC.