Skip links

Reversal of ITC in case of non-payment of consideration

Reversal of ITC in case of non-payment w.e.f. 01/10/2022

The Central Board of Indirect Taxes and Customs (CBIC) has announced an amendment in Notification No. 9 that is regarding the reversal of Input Tax Credit (ITC) in case of non-payment of the consideration within 180 days w.e.f. 01.10.2022 by the recipient. Let us proceed ahead and know in detail the amendment brought up by the CBIC department.

Before jumping to learn the amendments that have come in ITC, let us discuss the basic concepts regarding it.

What is ITC?

Section 2(62) of CGST Act defines “input tax credit” as follows:-

“Input Tax” in relation to a registered person means the Central tax (CGST), State tax (SGST), Integrated tax (IGST) or Union territory tax (UTGST) charged on any supply of goods or services or both made to him and includes:-
(a) the integrated goods and services tax charged on import of goods
(b) the tax payable under the reverse charge of CGST
(c) the tax payable under the Integrated Goods and Services Tax Act (reverse charge of IGST)
(d) the tax payable under the respective State Goods and Services Tax Act (reverse charge of SGST); or
(e) tax payable under the provisions of Section 7 of the Union Territory Goods and Services Tax Act (reverse charge of UTGST)

How to claim ITC in GST?

For claiming Input tax Credit, every registered person shall adhere to some necessary conditions and restrictions as prescribed under Section 49 of CGST Act in order to avail input tax credit of input tax charged on any supply of goods or services or both. The input which is further used or intended to be used in the course or furtherance of business and the amount is then credited in the electronic credit ledger.

The conditions necessary to claim ITC are as follows:-

  • Documentary requirements and conditions for claiming input tax credit (Rule 36 of CGST and SGST Rules 2017)
  • Where the tax invoice contains minimum specified details even if it does not contain all required details (Rules 26(2) of CGST Rules 
  • ITC cannot be taken after one year from date of invoice or filing of annual return
  • No ITC if GST was paid by supplier on advance paid to him
  • Restriction on availing ITC if supplier has not uploaded details of supplies in GSTR-1

Reversal of input tax credit if payment not made to supplier

For claiming ITC, it is said that the buyer should pay the supplier for the supplies received within the time period of 180 days from the date of issuing the invoice.

Now, there has come an update by the GST department in Notification No. 9 which is regarding the reversal of Input Tax Credit (ITC) in case of non-payment of consideration. Let us discuss the amendment related to ITC in detail.

Beginning with the first ITC update that has appeared in :-

Rule 21: Registration is liable to Cancellation to Certain Cases.

Till date, only 7 clauses were mentioned starting from clause (a) to clause (g). However, now two more clauses have been inserted which says:-

The GST Registration shall be cancelled in additional two cases as well, namely:-

(a) Where the registered person is required to file GST Returns for each month or part thereof, has however not furnished the GST returns for a continuous period of six months then, the GST registration shall be canceled.

(b) Where the registered person is obliged to file GST Returns for each quarter or part thereof has somehow failed to furnish returns for a continuous period of two tax periods.

So, to sum it up, it means that whosoever has not filed GST returns may it be for a continuous period of six months or for a continuous period of two tax periods shall be liable to cancellation of GST Registration.

The second update is under:-

CGST Rule 36: Documentary Requirements and Conditions for claiming ITC

 It states “Input tax credit shall be availed by a registered person only if all the applicable particulars as specified in the provisions of Chapter VI are contained in the said document, and the relevant information, as contained in the said document, is furnished in FORM GSTR 2 by such person.”

However now, some slight change has come where the above-mentioned clause is shortened and limited. It is now “Input tax credit shall be availed by a registered person only if all the applicable particulars as specified in the provisions of Chapter VI are contained in the said document.”

This was not a major change or not even a change to focus on. Coming to the third update that is an important one!

Rule 37: Reversal of ITC in case of non-payment of consideration

In this specific rule, first two clauses have been changed and these are:-

―(1) A registered person, who has availed of input tax credit on any inward supply of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, but fails to pay to the supplier thereof, the amount towards the value of such supply along with the tax payable thereon, within the time limit, shall pay an amount equal to the input tax credit availed in respect of such supply along with interest payable thereon, while furnishing the return in FORM GSTR-3B for the tax period immediately following the period of one hundred and eighty days from the date of the issue of the invoice:

Provided that the value of supplies made without consideration shall be deemed to have been paid for the purposes.

Provided further that the value of supplies on account of any amount added shall be deemed to have been paid.

(2) Where the said registered person subsequently makes the payment of the amount towards the value of such supply along with tax payable thereon to the supplier thereof, he shall be entitled to re-avail the input tax credit”.

Moreover, Rules 69,70,71, 72,73,74,75, 76, 77 and 79 mentioned below are now omitted.

Rule 69 : Matching of Claim of Input Tax Credit

Rule 70 : Final Acceptance of Input Tax Credit and Communication thereof

Rule 71 : Communication and Rectification of Discrepancy in ITC Claim/ Reversal thereof

Rule 72 : Claim of Input Tax Credit on the same Invoice more than Once

Rule 73 :  Matching of Claim of Reduction in the Output Tax Liability

Rule 74 : Final Acceptance of Reduction in Output Tax Liability and Communication thereof

Rule 75 : Communication and Rectification of Discrepancy in Reduction in Output Tax Liability and Reversal of Claim of Reduction

Rule 76 : Claim of Reduction in Output Tax Liability more than Once

Rule 77 : Refund of Interest Paid on Reclaim of Reversals

Rule 79 :  Communication/ Rectification of Discrepancy in Details Furnished by e-Commerce Operator/ Supplier

 ***

These were the amendments prescribed in the CGST Act. To have a more clarity on the amendment, attaching the official document by the CBIC.

NOTE :-  The above-mentioned information is clearly based on the view that is assumed and illustrated by us. However, one may have his or her own interpretation of the clause. Therefore, attaching below the official document.

Download the PDF
[ld_spacer height=”22px” md_height=”30px”][ld_banner show_button=”yes” ib_style=”btn-default” ib_title=”Know more” use_custom_fonts_title=”true” title=”Contact EAdvisors regarding any query.” ib_link=”||target:%20_blank|” image=”15947″ bg_color=”rgb(0, 0, 0)” title_color=”rgb(255, 255, 255)” ib_css=”.vc_custom_1663676033629{background-color: #c7d8d5 !important;}”]

Leave a comment

🍪 This website uses cookies to improve your web experience.