IGST credit wrongly availed-Interest chargeable or not

As we know that the supplier of the goods or services charge the GST from the recipient except in case of RCM.  Now, the recipient has to take ITC of such tax which is charged by their suppliers. However, sometimes the recipient takes the ITC which is not available to him or some times the recipient takes excess ITC. In such situation when the recipient reverse such ITC which was wrongly availed by him, he is also liable to pay interest. In this article we will discuss those situation under which interest is payable for ITC which was wrongly taken.

Under CGST Act 2017 there is a section 50 which contains the provisions in respect of Interest on delayed payment of tax. Sub section 3 of section 50 of CGST Act 2017 talks about the interest on ITC wrongly availed. The treatment of interest on excess Input Tax Credit (ITC) availed but not utilised has seen significant changes. Initially, the position was that interest should be paid on excess credit even if not utilised. The sub section 3 of section 50 of CGST Act, before the amendment made vide section 111 of Finance Act 2022, is laid down as follows;

“(3) A taxable person who makes an undue or excess claim of input tax credit under subsection (10) of section 42 or undue or excess reduction in output tax liability under subsection (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.”

However, vide Section 111 of Finance Act 2022 a retrospective amendment was made in sub section 3 of section 50 of CGST Act 2017. The said section 111 of Finance Act 2022 was notified vide Notification No. 09/2022-Central Tax. The retrospective amendment to Section 50 states that interest only applies to the net tax liability paid via the electronic cash ledger.  The said sub section 3 of section 50 after the retrospectively amendment states that;

“Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four per cent. 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.”

This move implies that for excess ITC that is merely availed but not utilised and subsequently reversed without being offset against any output tax liability, there should be no interest charge. Hence interest should only apply to amounts that have actually been utilised and resulted in a delayed payment to the government, leading to a revenue loss.

Rate of Interest on delayed payment of GST:
As per Notification 13/2017 - Central Tax dated 28.06.2017 which are amended retrospectively w.e.f. 01.07.2017 vide Section 116 of Finance Act, 2022 respectively to notify the rate of interest on delayed payment of CGST, SGST, IGST from 24% p.a. to 18% p.a. under section 50(3) of the CGST Act

How to calculate Interest for wrong availment of ITC:
Sub rule 3 of Rule 88B states that in case, where interest is payable on the amount of ITC wrongly availed and utilised in accordance with section 50(3), the interest shall be calculated on the amount of ITC wrongly availed and utilised, for the period starting from the date of Utilisation of such wrongly availed ITC till the date of reversal of such credit.
Further as per explanation contained in said sub rule 3 of rule 88B, the ITC wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of ITC 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 ITC wrongly availed.

For the calculation of interest in case of wrong availment of IGST credit, one common doubt that was commonly arise is that whether the balance of ITC in electronic credit ledger under the head of IGST only needs to be considered or total ITC available in electronic credit ledger, under the heads of IGST, CGST and SGST taken together, has to be considered.

In this respect it is important to know that since the amount of ITC available in electronic credit ledger under any of the heads of IGST, CGST or SGST can be utilized for payment of liability of IGST. Hence the total ITC available in electronic credit ledger under the heads of IGST, CGST and SGST taken together to check whether such IGST credit is utilised or not.

For example: If suppose Mr. X has wrongly availed the ITC of IGST of Rs. 1,00,000/- in the month of May 2024. Now, in the month of October 2024 Mr. X wants to reverse such wrongly availed ITC. For the purpose of checking whether such IGST credit is utilised or not, we have to check the balance of electronic credit ledger of Mr. X from May 2024 to October 2024, if in any month the total amount of credit ledger does not fall below Rs. 1,00,000/- no interest would be payable. Let suppose if the amount available in credit ledger under head CGST is Rs. 45,000 & SGST Rs. 45,000 and IGST Rs. 20,000/- in such situation even though the balance available in credit ledger of IGST is only 20,000/- but the total balance of credit ledger is 1,10,000/- which is more than the credit wrongly availed i.e., 1,00,000/- hence in such situation there would be no need to pay interest.

The same was also clarified by the CBIC vide Circular No. 192/04/2023-GST dt.17.07.2023 that in 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.

Conclusion: No interest would be payable under section 50(3) for wrong availment of ITC of IGST, if the amount available under CGST, SGST & IGST in the electronic credit ledger does not fall below the amount of IGST credit wrongly availed, at any time during which such credit is wrongly availed till the date of reversal of such credit.

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.