REVERSAL OF INPUT TAX CREDIT FOR NON-PAYMENT TO THE SUPPLIER OF GOODS OR SERVICES OR BOTH WITHIN A PERIOD OF 180 DAYS FROM THE DATE OF SUPPLY
The
Goods and Services Tax Act, 2017 came into force in India with effect from
1.7.2017.
In
Chapter V
of CGST Act, 2017 under heading “INPUT TAX CREDIT” the following rule is
available. The rule has been amended vide notification No.26/2018 dated 13.6.2018.
Rule 37. Reversal of input tax credit in the case of
non-payment of consideration.- (1)A
registered person, who has availed of input tax credit on any inward supply of
goods or services or both, but fails to pay to the supplier thereof, the value
of such supply along with the tax payable thereon, within the time limit
specified in the second proviso to sub-section(2) of section 16, shall furnish
the details of such supply, the amount of value not paid and the amount of
input tax credit availed of proportionate to such amount not paid to the
supplier in FORM GSTR-2 for the month 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 as specified in Schedule I of the said Act
shall be deemed to have been paid for the purposes of the second proviso to
sub-section (2) of section 16:
[Provided further that the
value of supplies on account of any amount added in accordance with the
provisions of clause (b) of sub-section (2) of section 15 shall be deemed to
have been paid for the purposes of the second proviso to sub-section (2) of
section 16.] (Inserted
from 4.9.2018)
(2) The amount of input tax
credit referred to in sub-rule (1) shall be added to the output tax liability
of the registered person for the month in which the details are furnished.
(3) The registered person
shall be liable to pay interest at the rate notified under subsection (1) of
section 50 for the period starting from the date of availing credit on such
supplies till the date when the amount added to the output tax liability, as
mentioned in sub-rule (2), is paid.
(4) The time limit specified
in sub-section (4) of section 16 shall not apply to a claim for re-availing of
any credit, in accordance with the provisions of the Act or the provisions of
this Chapter, that had been reversed earlier.
CONDITIONS TO AVAIL INPUT TAX CREDIT
There
are certain conditions applicable to avail Input Tax Credit by a recipient of
Goods or Services or Both as detailed below:
1. The supplier of Goods or Services or Both must have
filed the GST Returns and paid the GST applicable.
2. The supplier of Goods or Services or Both must have
furnished the full details of Recipients with bill wise details under GST.
3. If the supplier of Goods or Services or Both failed
to furnish the GST Returns and/or failed to furnish bill wise details and
recipient details, the recipient will not be able to avail Input Tax Credit.
4. The Recipient of Goods or Services or both should pay
the Bill amount fully without any balance within a period of 180 days (i.e. within a period of 6 months)
to the Supplier of Goods or Services or both.
If the Recipient fails to pay the amount to the supplier, the Recipient
must mention the non-payment details in the GST Return and reverse the Input
Tax Credit already availed by him and pay the same along with interest
disclosing the ITC amount along with the output tax payable.
To avail ITC, the Recipient
of Goods or Services or both must have the following records without fail.
1. Tax Invoice
2. The Recipient must receive Goods or Services or Both
3. The tax amount collected in the Tax Invoice must have been credited in the Government account.
4. The Supplier of Goods or Services or Both must file Final GST Return in complete shape for each month or quarter whichever is
applicable. Mere submission of return without payment of GST will not be
acceptable.
Cash
on Delivery basis or Cash Purchase will not come under this purview.
Under
CGST Rule 37, the Recipient of Goods or Services or Both will have to pay the
full bill amount without any balance within a period of 180 days to the
Supplier. The payments made to the supplier either by cash or through bank
transactions and the payment details must reflect in Supplier’s accounts within
180 days from the bill date (not actual receipt of goods by recipient) without
any grace period for realisation of cheque etc.
In
normal practice in trade, the Recipient of Goods or Services or Both receives
the same from the Suppliers on credit basis and making payments in piecemeal.
For
example, the Recipient pays certain percentage of total value at the time of
arrival of Goods or Services or both and the remaining amount paid in fixed
intervals in weekly or monthly or bi-monthly or quarterly basis. The Supplier issues Cash or Cheque Receipt
Vouchers for such amount paid by the Recipient.
If
the Supplier fails to account for the cash/cheque received from the Recipient
in ascending period or aging period wise, there is possibility of old bill
amounts stands unpaid and later bill amounts are settled and in such cases,
the payments made by the recipient to the supplier may exceed the period of 180
days.
In
such cases the Recipient will have to reverse the Input Tax Credit availed at
the end of 6 months period and disclose the same details and pay the reversed Input
Tax Credit (as output tax payable) availed by him along with the interest of
18%.
The
assessing authorities will easily detect the non-payment details by a recipient
to the supplier by verifying the balance sheet furnished by the recipient or
through the Bank Reconciliation Statement or Receipt Vouchers issued by the
Suppliers to the Recipients and they can issue notices to reverse the ITC and
levy interest for delayed payments.
Hence,
it is advisable to settle the bill amounts to the suppliers by the recipients
on chronological bill wise or chronological date wise mentioning the details to
avoid reversal of Input Tax Credit for non-payment of money to the supplier
within a period of 180 days. If such
procedure adopted, the recipients can save Input Tax Credit from reversal and
interest payable thereon.
OR
Avoid
piecemeal payments and make full payment for each Bill within a period of 180
days by Cash or Funds Transfer or NEFT, and avoid issue of Cheque on 180th
day, which will cause trouble under this rule.