GST UPDATE NO. 151/2019-20 ON CREDIT REVERSAL FOR NON PAYMENT TO SUPPLIER WITHIN 180 DAYS

The provisions under GST Laws have been borrowed from the erstwhile indirect tax regime. However, certain provisions that were relevant in the erstwhile indirect taxation regime have been incorporated in the GST Laws without even analysing the rationale behind such provision. One such provision is requirement to reverse input tax credit if payment is not made to the supplier within 180 days from the date of issuance of invoice along with interest. The relevant provision is contained in second proviso to section 16(2) of the CGST Act, 2017 read with Rule 37 of the CGST Rules, 2017. It is worth mentioning that similar provision was there in the erstwhile Cenvat Credit Rules, 2004 as there was no matching concept for availing credit and the assessee was eligible to avail credit irrespective of the fact whether the supplier has paid taxes to the government or not. Consequently, law provided that the credit is to be reversed if payment is not being made to the supplier within 180 days from the date of issuance of invoice. Moreover, earlier service tax was to be paid on receipt basis. But this provision was changed in year 2011. But there were certain category of service tax providers having turnover less than Rs.50 Lakh who were required to pay the tax on receipt basis. In such situation, there was relevance of concept of allowing of credit if payment is made within 180 days.

However, in the GST regime, the situation has substantially changed and now, the input tax credit is admissible if the supplier has filed the return and the credit is populated in GSTR-2A of the assessee and in such a scenario where matching concept is prevailing, although the same would be implemented in entirety soon, there is no need of such a provision. The present update seeks to discuss the practical difficulties faced by the assessees with respect to this provision.

The provision from the CGST Act, 2017 is produced hereunder for ready reference as follows:-

Provided further that where a recipient fails to pay to the supplier of goods or

services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

Furthermore, the extracts from the provisions contained in Rule 37 of the CGST Rules, 2017 are as follows:-

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, but fails to pay to the supplier thereof, the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to sub-section(2) of section 16, shall furnish the details of such supply, the amount of value not paid and the amount of input tax credit availed of proportionate to such amount not paid to the supplier in FORM GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice:

(2) The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax liability of the registered person for the month in which the details are furnished.

(3) The registered person shall be liable to pay interest at the rate notified under sub-section (1) of section 50 for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability, as mentioned in sub-rule (2), is paid.

(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.

On analysing the above cited provisions, it is clear that if the amount is not paid to the supplier within period of 180 days from the date of issuance of invoice, the input tax credit is required to be added to the output tax liability of the recipient of goods/service. Moreover, according to Rule 37, the recipient is also liable to pay interest starting from the date of availing credit on such supplies till the date when the amount is added to the output tax liability. Firstly, the meaning of phrase “date of availing credit” in GST regime is not clear as many experts believe that the credit is availed only when it is available in the electronic credit ledger of the assessee which is possible only after filing GSTR-3B. However, literal interpretation may lead to conclusion that date of availing credit is the date when the said credit is recorded in the books of accounts of the assessee and not reflected in GSTR-3B. Anyways, the provision requires that the interest is required to be paid from the date of availing credit till the date when such amount is added to the output tax liability of the recipeint which is very harsh. It is worth mentioning that according to the Press Release dated 21.07.2018 issued with respect to recommendations made during the 28^th Meeting of the GST Council held in New Delhi on 21^st July, 2018, it was proposed that in case the recipient fails to pay the due amount to the supplier within 180 days from the date of issue of invoice, the input tax credit availed by the recipient will be reversed, but liability to pay interest will be done away with. However, this amendment has not been implemented till date and due to this, the assessees are facing the rigours of the revenue authorities.

Apart from the burden of interest, the assessee is also being asked to pay penalty for not reversing the input tax credit after expiry of the period of 180 days even when there is no express provision as regards payment of penalty in section 16 of the CGST Act, 2017 or Rule 37 of the CGST Rules, 2017. It is submitted that this provision holds no significance in the GST regime and should be scrapped as this provision is leading to unnecessary harassment to the assessees. When the assessee is allowed to take re-credit of the input tax credit reversed by them under this provision without any time limit, the provision regarding interest should be dispensed with and specific provision as regards non-levy of penalty in such cases should also be incorporated in the CGST Act, 2017.

This update is solely for educational purpose.
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GST UPDATE NO. 151/2019-20 ON CREDIT REVERSAL FOR NON PAYMENT TO SUPPLIER WITHIN 180 DAYS

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