Interest Where Wrongly Availed ITC Was Never Utilised: Section 50(3), Rule 88B(3) and the Rule 42(2)(a) Annual Reversal
This article examines whether interest is payable under the CGST Act, 2017 on input tax credit (ITC) that was wrongly availed but never utilised, with particular attention to the additional reversal that arises when common credit is finalised for the year under Rule 42 of the CGST Rules, 2017.
Departments are raising interest demands on such reversals, and the dispute turns on which provision the demand actually invokes. The better view depends on keeping the distinct events of availment and utilisation apart, and on identifying whether interest is claimed under Section 50(3) read with Rule 88B(3) or under Section 50(1) through Rule 42(2)(a).
The issue
Where an assessee reverses less common credit during the year than the annual calculation requires, the shortfall is reversed at year end. The question is whether interest follows on that additional amount even though the corresponding credit sat in the Electronic Credit Ledger and was never used to pay tax.
The governing law
Section 50(3) and Rule 88B(3)
Section 50(3) provides for interest where ITC has been wrongly availed and utilised. Both events are required. Rule 88B(3) computes that interest from the date of utilisation, and its Explanation supplies a mechanism for deciding when wrongly availed ITC is treated as utilised, by reference to the balance in the Electronic Credit Ledger.
CBIC Circular No. 192/04/2023-GST dated 17 July 2023 clarifies how the balances of IGST, CGST and SGST credit in the ledger are to be considered when deciding whether wrongly availed IGST credit has been utilised.