GST Update on interest liability on wrong availment of credit in gst regime part-15

The present update discusses in detail about the interest liability on wrong availment of input tax credit under GST. Before proceeding to the provisions of interest under GST regime, it is pertinent to mention that in the erstwhile regime, interest was payable by the assessee only if the wrongly availed credit was utilised. In other words, the interest was not payable if the wrongly availed credit was not utilised by the assessee. Say for example, if the wrongly availed credit was Rs. 10,000/- and the assessee had balance of credit more than Rs. 10,000/- throughout the period, it was considered that the wrongly availed credit was not utilised and no interest was payable. However, the position under GST regime is different and interest is payable even if the wrongly availed input tax credit is not utilised as the provisions of section 73 and 74 pertain to recovery of input tax credit wrongly availed OR utilised along with interest. The use of word ‘OR’ denotes that interest is payable even if the input tax credit is not utilised as confirmed by the Apex Court in the case of UNION OF INDIA VERSUS IND-SWIFT LABORATORIES LTD. [ 2011 (265) E.L.T. 3. (S.C.)]. The provisions contained in section 50 of the CGST Act, 2017 pertaining to interest under GST are discussed as follows:-

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.
(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) A taxable person who makes an undue or excess claim of input tax credit under sub-section (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.
Furthermore, the interest rates in GST regime have been prescribed vide Notification No. 13/2017 – Central Tax dated 28th June 2017, wherein the rate of interest under section 50(3) of the CGST Act, 2017 is specified as 24% p.a.

Now, the question arises is whether every kind of wrong availment of input tax credit is covered by the provision of section 50(3) or not. If the provision contained in section 50(3) is examined, it is found that only excess or undue claim of input tax credit under section 42(10) or undue or excess reduction under section 43(10) of the CGST Act is liable to interest of 24% p.a. It is submitted that section 43(10) pertains to interest liability on undue or excess credit availment on account of non-matching of input tax credit as was proposed while introducing the GST law. It is pertinent to note that when GST law was implemented, concept of matching was proposed wherein input tax credit was available only if it matched with the corresponding outward supply furnished by the supplier. The mechanism of matching via GSTR-1, GSTR-2 and GSTR-3 has not been implemented till date. Consequently, the provisions contained in section 42 are not relevant in the present context. This has the effect that as on date, there is no provision prescribing levy of interest for wrong availment of input tax credit for reasons other than matching. Say for example, in case where input tax credit of tax paid under reverse charge mechanism on specified services is wrongly availed or where the input tax credit has wrongly been carried forward in TRAN-1 under transitional provisions. In such situations, whether interest rate specified under section 50(3) could be considered to be applicable? Well, the answer is big NO.

It is submitted that although there is specific provision contained in section 50(1) for specifying rate of interest for delayed payment of GST, there is no explicit provision regarding levy of interest for wrong availment of input tax credit for reasons other than matching concept as proposed under section 40(2) of the CGST Act, 2017 and not implemented till date. Therefore, the assessees may challenge the demand of levy of interest on wrong availment of input tax credit in Courts as there is no explicit provision for the same. However, logically it may not sound good that wrong availment of input tax credit would not attract any interest under GST regime and there will definitely be a huge tug of war between assessee and the revenue authorities on this issue in the days to come.
The content of this GST update is for educational purpose only and not intended for solicitation.

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GST Update on interest liability on wrong availment of credit in gst regime part-15

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