No Interest Proceedings for Ineligible ITC availed but Not Utilized In GST Returns

No Interest Proceedings Can Be Invoked On Ineligible Input Tax Credit Availed But Not Utilized In GST Returns

Recent 45th GST Council meeting has put logical end in relation to demand of interest on availment of Ineligible Input Tax Credit but not utilized in GST Returns. Generally, availment of Ineligible Input tax credit can arise broadly in four sceneries which are enlisted as under

• Availment of Ineligible Input tax credit and utilized in GST returns.
• Availment of Ineligible Input tax credit and not utilized in GST returns.
• Reversal of availed Ineligible Input tax credit in GST returns after availment but before utilization in GST returns
• Reversal of availed Ineligible Input tax Credit in GST returns after availment and utilization in GST returns.

In this article we shall confine our discussions with respect to demand of interest on availment of Ineligible Input Tax Credit and not utilized in GST Returns / reversal of availed Ineligible Input tax credit in GST Returns after availment but before utilization in GST Returns.

The aforementioned situations may arise due to interpretational issues in analyzing provisions of Section 16 or Section 17 of CGST Act coupled with department advance rulings, Circulars, Departmental notifications, dichotomy of opinion in Judicial Pronouncements of different judicial forums, to avoid lapse of Input tax credit under Section 16(4) of GST Act.

It is a well settled law in Pre-GST regime that if credit has been reversed before its utilization it tantamount to non-availment of Input tax credit. Under Rule 14 of CENVAT Credit Rules, interest can be demanded only when wrong credit credit is taken and utilized. There are Plethora of Judicial Pronouncements affirming the same

• CCE Vs M/S STARTEGIC ENGINEERING PVT LTD (2014- TIOL – 466- HCMAD- CX)
• IDEA CELLUAR LTD Vs CCE [2017] 77 TAXMAN.COM 289 [BANGALORE – CESAT]
• GRASIM BHIWANI TEXTILES LTD Vs CCE 2016 (332) ELT 865 [CESAT, DELHI]
• COMMISSION OF CENTRAL EXCISE – BANGALORE-II Vs PEARL INSULATION LTD (2012) 28 TAXMAN.COM 231 (KARNATAKA) 

However, in post GST regime, there was no clarification (or) provision under the statute which explicitly provide for the levy of interest in the cases of Reversal of availed Ineligible Input tax credit which is not utilized against any Output tax liability or availment of Ineligible Input Tax Credit but not utilized in GST Returns.

Section 50(1) of CGST Act, prescribes for interest in relation to Non- payment (or) short payment of Output tax liability which is discharged belatedly by way of cash

Provision of Section 50(3) would be attracted (or) applicable relating to mismatch of input tax credit availed by recipient or Mismatch of output tax liability reported by supplier under Section 42(10) or Section 43(10) of CGST Act respectively. The provisions of Section 42(10) or 43(10) were kept in abeyance.

Ignoring the past Judicial Pronouncements and provisions of GST Act, demand notices were issued against the assesses who have availed Ineligible Input tax credit but the same was reversed before its utilization in GST returns or not utilized in GST Returns. Further on Wrongful availment of Input tax credit department used to demand 24% rate of interest by invoking Section 50(3) of CGST Act

There are various Judicial Pronouncements in the favor of assesses post GST regime on said issue. They are as under

• M/s COMMERCIAL STEEL ENGINEERING Vs STATE OF BIHAR (W.P. NO. 2125 OF 2019)
• M/s F1 COMPONENTS PVT LTD Vs STATE OFFICER CHENNAI (W.P NO. 6631 OF 2021)
• M/s MAANASROVAR MOTORS PVT LTD The Assistant Commissioner (W.P NO. 4468 OF 2020)

45^th GST council meeting has put an end to these controversies and unnecessary litigations  by clarifying that no interest shall be demanded against the assessee in relation to input tax credit availed but not utilized in GST Returns. The relevant portion of 45^th GST Council Press release is extracted as under:

“In the spirit of earlier Council decision that interest is to be charged only in respect of net cash liability, section 50 (3) of the CGST Act to be amended retrospectively, w.e.f. 01.07.2017, to provide that interest is to be paid by a taxpayer on “ineligible ITC availed and utilized” and not on “ineligible ITC availed”. It has also been decided that interest in such cases should be charged on ineligible ITC availed and utilized at 18% w.e.f. 01.07.2017.”

This is one of the appreciable decision taken by 45^th GST Council meeting wherein the assessee who were in dilemma to take Input Tax Credit on certain transactions can avail the same without utilizing in GST Returns the said exercise would prevent assessee from lapse of input tax credit under Section 16(4) of CGST ACT.

(The views expressed in this article are strictly personal)