First, let us have a look at the relevant sections of the CGST Act in order to determine whether interest is applicable on input tax credit which is shown wrongly in the return but not utilised against the payment of output tax liability, as below:
According to section 50 (3) of CGST Act, a taxable person who makes an undue or excess claim of input tax credit under subsection (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.
According to Section 42 (10) of CGST Act, the amount reduced from the output tax liability in contravention of the provisions of sub-section (7) shall be added to the output tax liability of the recipient in his return for the month in which such contravention takes place and such recipient shall be liable to pay interest on the amount so added at the rate specified in sub-section (3) of section 50.
According to Section 43 (10) CGST Act, The amount reduced from output tax liability in contravention of the provisions of subsection (7) shall be added to the output tax liability of the supplier in his return for the month in which such contravention takes place and such supplier shall be liable to pay interest on the amount so added at the rate specified in sub-section (3) of section 50.
In view of the above provisions, it is clear that interest is applicable only when the output tax liability is reduced by falsely utilising the input tax credit by the recipient of the credit against such liability as per section 42 (10) of CGST Act and when the actual output tax liability is reduced by the supplier as per section 43 (10) of CGST Act, i.e. excess ITC utilisation or excess reduction in output tax liabililty.
In both the provisions, it is mentioned clearly that when the output tax liability is reduced by either showing reduced amount of liability by the supplier or utilising input tax credit that is not actually available to the recipient. So, we hereby conclude that if the ITC is taken wrongly in the return but not utilised against any output tax liability then there is no interest applicable. Such ITC which is taken wrongly, can be reversed in the subsequent period and no need to pay interest on merely showing the same in the return as long as such ITC is not utilised.
Disclaimer: This article is only reading purpose, just to understand the provisions. The author bears no responsibility on decisions taken by the readers whatsoever. This article is merely for the purpose of understanding the provisions of the Act. E&OE.