With the enactment of Finance Bill 2022, a provision related to levying of interest on Input Tax Credit (ITC) wrongly availed and utilised will be implemented with effect from July 1, 2017. The tax department says such a provision is meant to bring clarity, while experts are of the view that further clarifications are required on related provisions.
Before the actual implementation of the provision, one more step is required — a notification by the Central Board of Indirect Taxes & Custom (CBIC). This will be done after State legislatures, too, amend the SGST (State Goods & Services Tax) laws in their respective jurisdictions.
As per the amendment, a person is liable to pay interest only in cases where any ITC is wrongly availed (taken into GST returns) as well as utilised (set off against the output tax liability). Earlier, the provisions were not clear and an interpretation was being drawn by tax authorities that interest is leviable even where a person has availed the ITC (taken into GST returns), but not set off against any tax liability.
This issue was discussed in 43rd GST Council Meeting that took place last year in May, following which an amendment was proposed in the Finance Bill 2022, which has subsequently been passed by Parliament. Along with this, some more amendments have been made in CGST Act for claiming ITC.
Raghavan Ramabadran, Executive Partner at Lakshimkumaran and Sridharan Attorneys, said the amendments made to the GST scheme by the Finance Act 2022 are a mixed bag of both restrictions and benefits. In a well-considered move, Section 50 has been amended retrospectively from July 1, 2017, to provide that interest is only payable when ineligible input tax credit is utilised. Basis this amendment, assessees can reevaluate their tax positions on payment of interest and explore the possibilities of claiming refund of interest already remitted.
“On the other hand, the eligibility to claim credit has been laden with more stringent conditions wherein the recipient may be disallowed credit on account of various defaults of the supplier. As a result, industry may expect prolonged disputes with the Taxman on their eligibility to avail credit in different scenarios. The industry should re-evaluate their contractual terms with the suppliers to ensure that the credit lost due to a default of the supplier will be compensated by the supplier,” he said.
Further, he mentioned that the amendments to the Finance Act are indicative of the government’s intention to continue the campaign against fraudulent business transactions while allowing concessions in genuine situations.
Harpreet Singh, Partner (Indirect taxes), KPMG in India, felt the amendment to levy interest on wrongly availed input tax credit only upon utilisation is a welcome move. The ambiguity on GST provisions on the issue had already started a string of litigations, resulting in hardship for the industry “Having said that, there are other provisions under GST laws, where applicability of interest may still be triggered on availment such as proviso to Section 16 requiring to reverse interest on non-payment of invoice to a supplier, Section 73 and 74 prescribing to make recoveries by tax officer. Thus, it becomes pertinent for the government to make necessary amendments in other provisions as well for greater clarity,” added Singh