ITC Reversal if recipient fails to pay to the Supplier of goods or Services or both (Sec 16(2))

In GST Law provision has been made for reversal of ITC where payment to vendor is not made in 180 days. Below is the clarification with example on the relevant provision:-

ITC availed will be reversed in case of non-payment of consideration within 180 days from the date of Issue Invoice and shall be added to output tax liability along with Interest @ 18% p.a. Interest Computation will be done from the date of credit availed and up-to the date of Reversal.

There is some misunderstanding as to whether ITC will be reversed or ITC claimed will be added to output liability. As heading of the section is using word reversal but main part of the section is saying to add it to output tax liability.

Sec 16(2) was based on GSTR 2 and GSTR 3. But these both were suspended.

Now only GSTR 3B is filed. In GSTR 3B, In Table 3.1 details to be filled are only regarding Outward Supplies and Inward Supplies liable to reverse charge. We can see from the following screenshot that there is no column for filling adding Input Tax liability

filling adding Input Tax liability

In Table 4 (B) there is a column of reversal where we can reverse the credit ineligible under sec 16(2)

credit ineligible

For Example:-

M/s ABC ltd received goods from dealer A worth Rs 10,000 + Gst @ 5% i.e. Rs 500 , invoice dated 21/09/2018. M/s ABC ltd availed credit on 15/10/2018 (date on which GST 3B of Sep 2018 filed). But failed to pay the invoice amount (10500) to the supplier till April 2019.

Solution :

180 days for Reversal of credit will be calculated from 21/09/2018— Means 20/3/2018 . So ITC of Rs 500 will be reversed in the GSTR 3B for the month of March 2019

For Interest Calculation

Date of Availment of credit : 15/10/2018

Date of Reversal : 17/04/2019 (Assumed to be the date filing of GST 3B for March 2019

So interest will be calculated for 184 days : ( 500*18%)*184/365 =Rs 45.36

Interest will be paid in Cash while filing GSTR3B for the month of March 2019.

Proportionate Reversal in case of partial payment : Pro-rata value of tax paid calculated by back calculation, considering the amount paid as cum-tax value

Invoice Value (in Rs) Paid or not paid within 180 days from the date of Invoice Partially paid
Goods/ Services 100 Not Paid Paid Not
Paid 50
GST 28 Paid Not Paid Not
Paid 9
Admissibility of ITC (28/128)*28=6.125 (28/128)*100=21.875 No 28 9
ITC to be reversed 28-6.125=21.875 28-21.875=6.125 28 0 9

Reclaim of Input Tax Credit Reversed earlier upon Payment

ITC can be reclaimed any time in future when the payment is made. No time limit is prescribed for reclaiming.

Important point is that Interest paid on reversal cannot be reclaimed.

Author Bio

Qualification: CA in Practice
Company: Hitesh Aggarwal & Associates
Location: Gurgaon, Haryana, IN
Member Since: 24 Apr 2019 | Total Posts: 2

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