GST UPDATE ON WAIVER OF INTEREST IN CASE OF NON PAYMENT WITHIN 180 DAYS AND REVERSAL OF CREDIT THEREOF ??

We have prepared a series of amendment proposed in recent GST council meeting. This update is also in continuation of the same. One more amendment proposed by GST council is waiver of interest on reversal of credit on non-payment within 180 days to supplier of goods.
The present relevant provision of Section 16(2) of the CGST Act, 2017 reads as follows -

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.
Therefore, if a person has availed input tax credit on inward supplies of goods or services or both and has not paid the amount due to the supplier within the time span of 180 days from the date of availing the credit, then such person shall have to reverse the amount of credit already availed in respect of that transaction. Such credit earlier availed will be added back to the output tax liability of the registered person. Apart from this aspect of reversal of credit on non-payment of the invoice value, there was also a clause of payment of interest on such procrastination.
This matter can be conveniently explained with the help of an example given below :
For example: Mr X, of Jodhpur has purchased goods from Mr.Z, of Delhi worth Rs 100,000/- on 1.08.2017. Such purchases are taxable with the rate 12% under GST. Therefore amount of IGST involved here is Rs 12000/-. Mr. X has received the goods on 15.08.2017. Mr X has taken input tax credit of such amount of IGST on 15.08.2017. Later on Mr X failed to pay the invoice value of 1,12,000/- to Mr Z even after 180 days from the date of taking credit i.e. upto 11.2.2018. This delay of payment will now require Mr X to reverse the credit of IGST, which shall be added back to output tax liability ledger. Mr. X reverses the credit on exact date of 11.2.2018. Also, he has to pay interest, calculated @ 18% on the amount IGST 12000/-. Time period involved for such calculation of interest will be commencing immediately from the date of availing credit and continuing till the date of reversal. Suppose, Mr. X has made payment on 18.3.2018 then he can take credit back on such date.
But normally, the person taking the credit is not aware of the fact that 180 days has elapsed and he has not made the payment to supplier. He forgot to reverse the credit. The departmental audit comes and point out the same. Meanwhile the payment has been made and he is eligible to take the credit back also. Like in present example, the payment is made on 18.03.2018 by Mr. X. Hence, the interest will be charged from the date of taking credit on 15.08.2017 to date of re-eligible to take credit i.e.15.03.2018. There is no need of reversal as he is now eligible to take the credit once again.
But, there were certain recommendations made during the 28^th meeting of the GST council held by the Ministry of Finance. One of such recommendations involved an amendment made to the above explained concept of delayed payment which states that ifthe recipient fails to pay the due amount to the supplier within 180 days from the date of availing credit, the input tax credit availed by the recipient will be reversed, but liability to pay interest is being done away with.
This can be interpreted in two ways. To start with, according to the first view it can be held that now there will no payment of interest and only consequence of such non-payment will be reversal of ITC already availed, thereby leading to NIL cost.
Now come again to example in hand. In first situation, Mr. X has reversed the credit on 11.02.2018. No need to pay the interest. He can again take the credit on 18.03.2018 when payment is made by Mr. X. There is no problem.
Situation 2 in above referred example wherein Mr. X forgets to reverse the credit. The audit points out the same. Meanwhile he has already made the payment to Mr. Z. Now he is re-eligible to take the credit. No need of reversal now. But the point is that he needs to pay the interest also. No interest is payable for both the periods i.e from 15.08.2017 to 11.02.2018 and also for the period from 11.02.2018 to 18.03.2018. The view taken above suggests the same. This seems to be absurd result. No reversal as well as no interest payment. Then nobody will do reversal under this provision.
Yet another view to this recommendation can be taken that there will be no complete waiver of interest. The waiver is only for the period when the assessee ought to have reversed the credit. The period after that date is his output liability and he has to pay the interest for remaining period. Hence, the interest is to be paid after 180 days if he has not reversed the credit. This concept can be more clearly explained via continuing to previous example:
Mr. X has not reversed the credit in situation 2. The audit has pointed out the same. He need not to reverse the credit as he has become re-eligible by making payment to Mr. Z. He needs not to pay the interest for the period from 15.08.2017 to 11.02.2018. But interest will be recovered for the period from 11.02.2018 to 18.03.2018 as it was his output liability. This seems to be more logical and legal interpretation.

Thus, there is ambiguity with respect to treatment of interest on the payment made to the supplier by the recipient.The notification has not been received so far. We shall wait till the notification is issued by the Government officials to clear the ambiguities arose by the press release released by the officials.

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GST UPDATE ON WAIVER OF INTEREST IN CASE OF NON PAYMENT WITHIN 180 DAYS AND REVERSAL OF CREDIT THEREOF ??

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