What was the Issue:
Issue was in respect of wrongly availed and utilised Input Tax Credit of IGST and Its Reversal and calculation of Interest payable while there is Balance in Electronic Credit ledger of IGST, SGST & CGST but IGST is less than IGST wrongly availed but sufficient if balance of IGST, SGST, CGST merge together, In That case how interest to be calculated was the issue and clarified by the government in this circular.
Let’s Take an example of This issue
Suppose Ram availed wrong ITC of IGST of Rs.100000 and later wants to reverse the same and there is below balance in his ECL:
IGST: Rs.50000
SGST: Rs.30000
CGST: Rs.30000
Total: Rs.110000
In That case although IGST balance is less than Rs.100000 but in Total amount is sufficient then How much amount to pay as Interest in this case was not clarified. and Ram is confused about interest liability.
Download This circular: https://taxupdates.cagurujiclasses.com/8-new-gst-circular-dated-17-july-2023/
Clarification:
In clarification by the government Rule 88B also reffered along with section 50(3). Let’s know the both first:
Rule 88B. Manner of calculating interest on delayed payment of tax:
Clause (3):
In case, where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with sub-section (3) of section 50, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub-section (3) of section 50.
Explanation.-For the purposes of this sub-rule, –
(1) input tax credit wrongly availed shall be construed to have been utilised, when the balance in electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.
(2) the date of utilisation of such input tax credit shall be taken to be, –
(a) the date, on which the return is due to be furnished under section 39 or the actual date of filing of the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or
(b) the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other cases.]
Section 50(3):
Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such ITC wrongly availed and utilised, at such rate not exceeding 24%. as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed (Right now 18% interest rate is notified by the government)
Now as you read above important sections you can easily understand the clarification :
- In case Balance is sufficient in ECL in Total (IGST+SGST+CGST):
Since the amount of input tax credit available in electronic credit ledger, under any of the heads of IGST, CGST or SGST, can be utilized for payment of liability of IGST, it is the total input tax credit available in electronic credit ledger, under the heads of IGST, CGST and SGST taken together, that has to be considered for calculation of interest under rule 88B of CGST Rules and for determining as to whether the balance in the electronic credit ledger has fallen below the amount of wrongly availed input tax credit of IGST, and to what extent the balance in electronic credit ledger has fallen below the said amount of wrongly availed credit
Thus, in the cases where IGST credit has been wrongly availed and subsequently reversed on a certain date, there will not be any interest liability under sub-section (3) of section 50 of CGST Act if, during the time period starting from such availment and up to such reversal, the balance of input tax credit (ITC) in the electronic credit ledger, under the heads of IGST, CGST and SGST taken together, has never fallen below the amount of such wrongly availed ITC, even if available balance of IGST credit in electronic credit ledger individually falls below the amount of such wrongly availed IGST credit.
However, when the balance of ITC, under the heads of IGST, CGST and SGST of electronic credit ledger taken together, falls below such wrongly availed amount of IGST credit, then it will amount to the utilization of such wrongly availed IGST credit and the extent of utilization will be the extent to which the total balance in electronic credit ledger under heads of IGST, CGST and SGST taken together falls below such amount of wrongly availed IGST credit, and will attract interest as per sub-section (3) of section 50 of CGST Act, read with section 20 of Integrated Goods and Services Tax Act,2017 and sub-rule (3) of rule 88B of CGST
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.
As Per proviso to section 11 of Goods and Services Tax (Compensation to States) Act, 2017, 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. Thus, credit of compensation cess cannot be utilized for payment of any tax under CGST or SGST or IGST heads and/ or reversals of credit under the said heads.
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.
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