Reversal of ITC, Goods and Services Tax - GST

[Bibhu Tripathy]

Dear experts,

From a real estate company Department sent a summons and asked some documents during Feb.19

The company had obtained completion certificate during May 2017 and accumulated ITC in the credit ledgers during 2017 -18 and 2018-19. After receipt of summons the company reversed the ITC IN financial documents. The credit could not be reversed in GSTR 3B due to non filing of return due to technical problems.

Department searched the premises during Aug, 19 and after seven days the return was filed and the credit was reversed from the accumulated ITC.

Department asking for interest on the ground that amendment in Sec. 50 does not apply to Rule 42 and the net cash liability concept is not applicable. Also they ask for penalty.

Is the Department correct in the said stand

Posts / Replies

[Rajagopalan Ranganathan]

Sir,Section 50 (1)

If proceedings are initiated under Section 73 or 74 of CGST Act, 2017 then the Department's stand is correct.

Proviso to Section 50 (1) of CGST Act, 2017 states that "provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger." If the the building/flats are sold after obtaining a completion certificate no gst is payable. Therefore they will become exempted from gst. Therefore you are not eligible to avail ITC on inputs and input services. Therefore rule 42 of CGST Rules, 2017 will be attracted.

Section 73 deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts. Section 74 deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts.

Since you had obtained the completion certificate during May 2017, you should have reversed the ITC in GSTR-3B return filed for the month of May 2017 to be filed on or before 20.6.2017. Therefore the Department would have invoked Section 74 on the ground that input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts.

However wait for the issue of show cause notice by the Department and then file your rejoinder as advised.

[RAMAKRISHNA SANGU]

I beg to differ with the view that if proceedings are initiated under Section 73 or 74 then interest shall be payable even on ITC reversal portion for the reason that said sections uses the words "input tax wrongly claimed or utilized".

I am of the view that even Section 73 or 74 provides that interest shall be leviable under Section 50 of the CGST Act. So ultimately interest shall be levied under section 50 and section 50 says NO interest on tax paid through ITC balance.

If it is counted by the department that the exclusion under section 50 is applicable only for output tax payable and not for any other cases then, there should not be any Interest on delayed reversal of ITC whether by using ITC balance or cash as section 50 speaks only about output tax.

[KASTURI SETHI]

Interest cannot be avoided for delayed reversal of ITC. Section 50 (3) is to be read with Section 42 (10) & Section 43 (10) of CGST Act and Rules 42 & 43 of CGST Rules. Section 50 (3) cannot be read in isolation.

[Himansu Sekhar]

I have a different opinion

Rule 42(1) as existing before 01.04.2019:

42. Manner of determination of input tax credit in respect of inputs or input services and reversal thereof.-(1) The input tax credit in respect of inputs or input services, which attract the provisions of sub-section (1) or sub-section (2) of section 17, being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, shall be attributed to the purposes of business or for effecting taxable supplies in the following manner, namely,-

(2) Used means utilised. When the credit is not utilised and reversed no interest is leviable in my opinion

(3) when the credit being not used, the intent to evade the tax has to be proved.

(4) In the case of G.K.Trading, Hon'ble High Court has opined that Summons is not a Proceedings.

Experts may kindly givr their opinion for clarity of the issue

[KASTURI SETHI]

There is every possibility of issuance of SCN under Section 74 invoking extended period for demand of interest and proposal for imposition of penalty.

Here is not only the issue of summons but also search of premises. It is a fact that the party did not reverse ineligible ITC on its own.

Proceedings commenced from the date of search.

In this scenario, 'non-utilization of ITC' would not help the party.

[Shilpi Jain]

In case credit is not utilized earlier, no question of short payment of tax to levy interest. However, rule 42 stipulates that interest will be applicable from 1st April of the next financial year irrespective of whether it pertains to utilized credit otherwise. Section 50 is referred there only for the rate of interest.

So interest could be liable. However a ground can be taken that interest should be compensatory for loss to Revenue. In this case as there is no loss no interest should be charged.

[Himansu Sekhar]

when the word used is mentiond in Rule 42 ,how can the unutilised credit will attract sub rule 2

[ABHISHEK TRIPATHI]

Dear Bibhu Ji,

The company need to contest that interest is not payable on reversal of unutilized ITC.

Firstly, section 42 is a different ball game. Kindly focus on the discrepancy department has to communicate as per s. 42. Whether your case falls under such discrepancy ? Section 42 is not for every reversal of unutilized credit.

Secondly, you may contest regarding availment and utilization. No interest until its utlised and so on and so forth with precedents under erstwhile IDT.

[GB Rao]

Dear querist,

The discrepancy is non-reversal of ITC on your own and hence the interest is applicable on gross amount of tax. I concur with the views of Shri Rajagopalan sir and Sethi sir.

[Manoj Pradhan]

I would like to urge experts as to why section 73 may not be invoked even if unutilized ITC or part utilized itç is reversed on their own ,for recovery of interest on delayed reversal . Department till date has not clarified on the issue of 'ITC availed or utilized ' as mentioned in Section 73 . Please give your comments . Thanks

[Shilpi Jain]

It is now pretty clear with the proposed amendment in section 50(2) that no interest will be applicable on interest availed but not utilised in case of provisions which have refered to section 50 for calculation of interest.

Section 73 is for demand in cases of mere availment also of the credit, so that the assessee does not say that the credit is only availed but not utilised and hence no demand can be raised.