Blog No. 74: Clarification on charging of interest u/s 50(3) of the CGST Act, 2017, in cases of wrong availment of IGST credit and reversal thereof.

The GST Council has examined the issue of chargeability of interest u/s 50(3) of the CGST Act, 2017 in the cases where IGST credit has been wrongly availed and reversed later. The clarification for the same has been issued through the Circular No. 192/04/2023-GST dated 17th July 2023.

 

To know more about the clarifications, read in detail the given update on this circular below:

 

Issue 1:

In the cases of wrong availment of IGST credit by a registered person and reversal thereof, for the calculation of interest under rule 88B of CGST Rules, whether the balance of input tax credit available in electronic credit ledger under the head of IGST only needs to be considered or total input tax credit available in electronic credit ledger, under the heads of IGST, CGST and SGST taken together, has to be considered.

 

 

 

Clarifications

 

  1. There will not be any interest liability under sub-section (3) of section 50 in the cases where-

1.1           IGST credit has been wrongly availed and subsequently reversed on a later date, and

1.2           The total balance of the input tax credit (ITC) in the electronic credit ledger under all the heads i.e., IGST, CGST and SGST has never fallen below the amount of wrongly availed ITC under the head IGST during the period starting from such availment and upto such reversal of ITC amount.

Note: Individually, the balance of IGST credit ledger can be lower than the amount of wrongly availed IGST credit.

  1. Interest would be payable when the total balance of ITC of electronic credit ledgers of all heads is less than the amount of wrongly availed IGST credit

 

2.1           The amount of utilization of IGST would be the difference of the total balance of ITC of all heads and the amount of wrongly availed IGST credit.

2.2           Interest would be paid at the rate of 18% p.a.

Example:

 

  1. The total balance of ITC, under the heads of IGST, CGST and SGST of electronic credit ledger is ₹50,000.
  2. The amount of wrongly availed IGST credit is ₹70,000.
  3. In this situation, the amount of IGST credit will be considered as utilized for ₹20,000 i.e. the difference between the amounts of (i) and (ii).
  4. Interest will be applicable @18% p.a. on ₹20,000/-.

 

 

 

Issue 2:

Whether the credit of compensation cess available in electronic credit ledger shall be taken into account while considering the balance of electronic credit ledger for the purpose of calculation of interest under sub-rule (3) of rule 88B of CGST Rules in respect of wrongly availed and utilized IGST, CGST or SGST credit.

 

Clarifications

 

  1. For clarifying above issue, the reference of proviso to section 11 of Goods and Services Tax (Compensation to States) Act, 2017, has been given which states that-

3.1              Input tax credit in respect of compensation cess on supply of goods and services leviable under section 8 of the said Act can be utilised only towards payment of compensation cess leviable on supply of goods and services.

3.2              Hence, the credit of compensation cess cannot be utilized for payment of any tax under CGST or SGST or IGST heads.

3.3              Accordingly, credit of compensation cess available in electronic credit ledger cannot be taken into account while considering the balance of electronic credit ledger for the purpose of calculation of interest under sub-rule (3) of rule 88B of CGST Rules in respect of wrongly availed and utilized IGST, CGST or SGST credit.

 

 

Paksh Remarks

 

  1. CBIC has agreed to the fungibility behind utilization of balance available in electronic credit ledger for the payment of output tax liability under various heads.

 

  1. Since the balance available under the head IGST can be utilised for the payment of output tax liability under the heads IGST, CGST and SGST, the credit balances under the heads CGST and SGST get artificially escalated. In such kind of situations, the authorities must not reject the refund applications filed for claiming the refund of IGST paid.

 

  1. This circular will go a long way in addressing the issues related to inter-head change in balances.
 

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