Article on Payment not made to supplier-What about ITC already availed

Payment not made to supplier-What about ITC already availed

For availing the input tax credit in respect of goods or services received the conditions of section 16(2) of CGST Act 2017 has to be fulfilled. Thus once the conditions of section 16(2) are fulfilled the recipient of goods or services can lawfully claim the ITC subject to the condition that such ITC is not blocked under section 17(5) of CGST Act 2017. Sometime the situation arises that the recipient has availed the ITC in respect of the goods or services received by them but due to the financial crises or any other reason, the payment in respect of goods or services are not made by them to the supplier. In such situation the ITC availed by the recipient can be questioned by the department due to the second proviso to the section 16(2) of CGST Act 2017. In this article we will discuss about the compliances that have to be followed by the recipient in case the payment is not made to the suppliers/creditors and how the recipient should report such ITC in GSTR-3B.

The second proviso to section 16(2) of CGST Act 2017 states that where a recipient fails to pay to the supplier of goods or services, other than the supplies on which tax is payable on RCM 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 ITC availed by the recipient shall be paid by him along with interest payable u/s 50, in such manner as may be prescribed.

Further Rule 37 of CGST Rules 2017 prescribes the manner of reversal of input tax credit. Sub Rule 1 of Rule 37 states that in the case of non-payment of consideration, a registered person shall pay or reverse an amount equal to the ITC availed in respect of such supply proportionate to the amount not paid to the supplier along with interest u/s 50, while furnishing the return in GSTR-3B for the tax period immediately following the period of 180 days from the date of the issue of invoice.

The sub rule (2) & (4) of Rule 37 are also important in this respect that on subsequent payment of the amount to supplier, the recipient would be entitled to re-avail the said ITC which was earlier reversed and the time limit specified in section 16(4) shall not apply for re-availing of such credit. Let us discuss the same with the help of an example;

Suppose Mr. A a registered person has purchased the goods from Mr. B another registered person on 01.4.2023 having taxable value Rs. 2,00,000/- and GST @18% i.e., 36,000/- hence total invoice value would be 2,36,000/-. Mr.A has availed the said ITC of Rs. 36,000/- in the GSTR-3B of April 2023. But Mr. A has not made the payment of such invoice to the supplier Mr. B within 180 days. Now, as per Rule 37 Mr. A has to reverse the said ITC of Rs. 36,000/- along with interest @18% in GSTR-3B. Suppose Mr. A has made the payment in respect of such invoice to Mr. B on 01.01.2025 then in such situation although the time limit to claim ITC in respect of invoice related to 2023-24 has been expired ie., 30^th November 2024, yet Mr. A would be eligible to reclaim such ITC as per sub rule 4 of rule 37 of CGST Rules 2017.

Consideration not paid to supplier in case the tax is paid under RCM:
Where the recipient has availed the supply of any goods or services on which RCM is applicable and the recipient has duly deposited the tax to the government under reverse charge and has availed the ITC in respect of the same but the payment in respect of said supply has not been made to the supplier, in such situation there is no need to reverse the ITC which was claimed by the recipient for the tax deposited under RCM. In other words the time limit of 180 days for making the payment to the supplier would not applicable in case the tax is deposited by the recipient under reverse charge.

How to Report such ITC in GST Returns:

Reporting of Reversal in GSTR-3B: Under GSTR-3B there are two tables for showing the reversals of ITC. These are table 4(B)(1) & table 4(B)(2) of GSTR-3B. In table 4(B)(1) the amount of ITC which are required to be reversed as per rule 38, 42, 43 of CGST Rules and section 17(5) of CGST Act 2017. In other words, the ITC which is not required to be re-claimed in future, would be reversed in table 4(B)(1). However, the ITC which is to be reclaimed in the future would be reversed in table 4(B)(2) of GSTR-3B.

Thus from the above it is clear that the permanent reversals need to be shown in table 4(B)(1) of GSTR-3B and temporary reversals need to be shown in table 4(B)(2) of GSTR-3B. The reversal of ITC due to non payment of consideration to the supplier within the prescribed time is a temporary in nature, which is to be reclaimed when the payment is made to the supplier. Hence the reversal of ITC due to consideration not paid to the supplier would be reported in table 4(B)(2) of GSTR-3B.

Reporting of Reclaim in GSTR-3B: After payment of consideration, the recipient can re-claim such ITC which was reversed in past months. Such re-claim of reversed ITC would be shown in table 4(A)(5) as well as in table-4(D)(1) of GSTR-3B . It will also impact the Electronic Credit Reversal & Reclaimed Statement which is available on the common portal.

Reporting in GSTR-9: In GSTR-9 the reversal of ITC is to be shown in table 7A and the reclaim of such ITC would be shown in table 6H of GSTR-9. In this respect an advisory has also been issued by team GSTN on the common portal on dated 09.12.2024 wherein the few scenarios are discussed in para 2 of the said advisory. One of such scenario is related to the reclaim of ITC which was reversed earlier due to non payment of consideration to supplier. The said scenario is laid down as follows;

“Invoice belongs to FY 23-24 and ITC has been claimed in FY 23-24. Due to payment not made to supplier within 180 days, ITC was reversed in 23-24 as per the second proviso to section 16(2) and this ITC is reclaimed in next Year FY 2024-25, after making the payment to supplier. How to report such transaction in the GSTR 9 of FY 23-24?

This reclaimed ITC shall be reported in the table 6H of GSTR 9 for FY 24-25 hence not in the Table 8C and Table 13 of GSTR 9 of FY 2023-24. This is in line with the Instruction to the Table 13 given in the Notified Form GSTR 9. Similar reporting is applicable for the ITC reclaimed as per Rule 37A”

Conclusion: In case of non payment of consideration to the supplier within 180 days the ITC which was earlier availed, need to be reversed in table 4(B)(2) of GSTR-3B. When the payment is made to the supplier, the same ITC would be reclaimed in table 4(A)(5) of GSTR-3B by reporting it in table 4(D)(1) of GSTR-3B. However, there is no need to reverse the ITC in case the payment not made to the supplier in respect of the supply which is covered under RCM.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.