QUESTION

(1) ITC claimed Rs. 2500.00 ( CGST 1250 SGST 1250 ) in December-2019 GSTR-3B on expenses invoices but ITC not available in GSTR-2A due to defective invoice ( our GSTIN not mentioned in invoice)

(2) Our Unutilised ITC Balance of Rs.117000 (IGST), Rs.35643 CGST &Rs. 35643 SGST in credit ledger since November -2019 to till date. Now I reversed this Ineligible ITC of Rs. 2500.00 ( CGST 1250 & SGST 1250) through DRC -03 before filling of GSTR-9 for the F Y 2019-20.

Whether I am liable to pay any interest on said ineligible ITC claimed of Rs. 2500.00 (ITC claimed but not utilised)

ANSWER

Facts of the case: Whether interest is liable to be paid on Ineligible ITC wrongly claimed in GSTR-3B but not utilized.

Law Applicable: SECTION 50 OF CGST ACT

(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.

Legal position: If credit is claimed wrongly or in excess then Interest is required to be paid on credit excess claimed even if it is not utilized as per section 50(3) of CGST Act.

As in your case credit is wrongly claimed in GSTR-3B, therefore you are required for interest liability even if you have not utilised the same.

Practical position: There is no provision of payment of interest on interest. Interest is to be charged only on credit claimed in excess and the period of interest is to be calculated from the date on which credit is availed to the date of reversal of credit. Once this interest is calculated then no interest may be charged on this interest amount. 

Suppose the excess credit of ITC is Rs 1,00,000/- and interest liability is Rs 5,000/-. You have reversed Rs 1,00,000/- and not deposited interest of Rs 5,000/-. If the payment of this liability is postponed then it will remain the same. In the normal course you should avoid to postpone the liability of interest because it may attract penal provisions.

But in technical case you can avoid payment of interest. The present case is a technical one because the claiming of interest on the credit which is unutilized is unlawful. This is the money with the Government and not utilized by the assessee. We take this opportunity to quote amendment made in CENVAT Credit Rules in the year 2012 vide Notification No. 18/2012-CE (NT) Dated 17/03/2012. The CCR was amended for imposition of interest only in case when the credit is availed and utilized. This amendment was made after various judgements given by Honourable Courts. The extract of law as on date is reproduced below:

CENVAT Credit Rules, 2004 - Rule 14 - Recovery of CENVAT credit wrongly taken or erroneously refunded
 

14. Recovery of CENVAT credit wrongly taken or erroneously refunded. '

(1) (i) Where the CENVAT credit has been taken wrongly but not utilised, the same shall be recovered from the manufacturer or the provider of output service, as the case may be, and the provisions of section 11A of the Excise Act or section 73 of the Finance Act, 1994 (32 of 1994), as the case may be, shall apply mutatis mutandis for effecting such recoveries;

(ii) Where the CENVAT credit has been taken and utilised wrongly or has been erroneously refunded, the same shall be recovered along with interest from the manufacturer or the provider of output service, as the case may be, and the provisions of sections 11A and 11AA of the Excise Act or sections 73 and 75 of the Finance Act, 1994, as the case may be, shall apply mutatis mutandis for effecting such recoveries.

Conclusion: One can postpone the liability of payment of interest if it is worth to go for litigation. In your case the amount is very small so you may deposit the interest. But in future if the amount is huge, then go for litigation.
(Reply dt. 23/02/2021)