Summary: Under GST law, if a recipient fails to pay their supplier within 180 days of the invoice date, they must reverse the input tax credit (ITC) availed for that supply and pay applicable interest. This provision, effective from October 1, 2022, requires the recipient to reverse or pay back the proportionate ITC amount linked to the unpaid supply in their GSTR-3B for the period following the 180-day deadline. Furthermore, recipients must pay interest on reversed ITC as per Section 50 of the CGST Act. To clarify ambiguity, the rules specify that only the unpaid portion of ITC should be reversed rather than the entire credit. If the payment to the supplier is completed later, the recipient may reclaim the ITC initially reversed. This rule emphasizes the need for effective cash flow management, accurate record-keeping, and monitoring of invoice payments to stay compliant and avoid penalties. Additional strategies include prioritizing payments to key suppliers and seeking professional guidance. The 180-day rule highlights the importance of timely supplier payments within GST compliance, helping businesses minimize financial risks and maintain a stable tax position.
The GST law provides that where a recipient fails to pay to the supplier the amount towards the value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, then such a recipient would be required to pay an amount equal to the input tax credit availed along with applicable interest. In this article, I shared few points, relevant sections and notifications for better understanding of GST provisions.
Page Contents
- Manner of reversal of ITC on account of non-payment within 180 days:
- ITC reversal only to be proportional to unpaid amount:
- Interest liability on reversal of ITC for non-payment within 180 days:
- Requirement to pay interest prior to 01-10-2022:
- Relevant Sections and Notifications:
- Strategies to Comply with the 180-Day Rule:
- Conclusion:
Manner of reversal of ITC on account of non-payment within 180 days:
The CGST Rules have been amended w.e.f. October 1, 2022 to provide the manner of reversal or payment of such ITC claimed by the registered person. According to the CGST Rules, if a registered person has claimed ITC on an inward supply but fails to pay the supplier for the value of the supply, wholly or partly, along with the tax payable thereon within 180 days, he would be required to pay or reverse an amount equal to the ITC availed for that supply proportionate to the unpaid amount along with interest thereon. Further, such payment or reversal is required to be made while furnishing the return in Form GSTR-3B for the tax period immediately following the period of 180 days from the date of the issue of the invoice.
In this regard, the CBIC has also clarified that the details pertaining to ITC reversal on account of non-payment of consideration to the supplier within 180 days (Rule 37) are required to be furnished in Table 4(B)(2) of Form GSTR-3B.
ITC reversal only to be proportional to unpaid amount:
Earlier, the CGST Rules were amended w.e.f. October 1, 2022 to provide the manner of reversal of ITC in the aforementioned cases. However, the drafting of the rules suggested that reversal was required on the entire amount of ITC availed on such supplies, even if the registered person had partially paid the supplier. To remove this ambiguity, the provision has been amended retrospectively to only require the reversal of ITC on the proportionate amount which is unpaid by the registered person.
Interest liability on reversal of ITC for non-payment within 180 days:
The registered person who is required to reverse the ITC is also required to pay the interest payable in terms of Section 50 of the CGST Act.
Requirement to pay interest prior to 01-10-2022:
Prior to October 01, 2022, the CGST Rules provided that the registered person would be liable to pay interest for the period starting from the date of availing credit on such supplies till the date when the amount is added to the output tax liability. However, with effect from the said date, the said provision has been omitted. Now, the CGST Rules provide that the registered person would be liable to pay the interest payable under Section 50.
Relevant Sections and Notifications:
Rule 37. Reversal of input tax credit in the case of non-payment of consideration.-
(1) A registered person, who has availed of input tax credit on any inward supply of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, but fails to pay to the supplier thereof, the amount towards the value of such supply 8[whether wholly or partly,] along with the tax payable thereon, within the time limit specified in the second proviso to sub-section(2) of section 16, shall pay [or reverse] an amount equal to the input tax credit availed in respect of such supply, proportionate to the amount not paid to the supplier, along with interest payable thereon under section 50, while furnishing the return in FORM GSTR-3B for the tax period immediately following the period of one hundred and eighty days from the date of the issue of the invoice.
Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub- section (2) of section 16:
Provided further that the value of supplies on account of any amount added in accordance with the provisions of clause (b) of sub-section (2) of section 15 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.
(2) Where the said registered person subsequently makes the payment of the amount towards the value of such supply along with tax payable thereon to the supplier thereof, he shall be entitled to re-avail the input tax credit referred to in sub-rule (1).]
(3) [****]
(4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier.
Section 50. Interest on delayed payment of tax.-
(1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council:
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 levied on that portion of the tax that is paid by debiting the electronic cash ledger.
(2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.
(3) Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four percent as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed
Notification No. 14/2022 – Central Tax dated 5th July, 2022:
Interest will be calculated from the date of utilisation of such input tax credit till the date of reversal.
Strategies to Comply with the 180-Day Rule:
- Effective Cash Flow Management
- Accurate Record Keeping
- Implement a system to monitor invoices and payment deadlines.
- Seek expert advice to understand the nuances of the rules and ensure compliance.
- Prioritize payments to critical suppliers to avoid potential disruptions.
Conclusion:
The 180 day rule is a crucial aspect of GST compliance. By understanding its implications and implementing effective strategies, businesses can mitigate risks, maintain a healthy financial position, and avoid unnecessary penalties.
*****
Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. The author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
Author Bio
