Input Tax Credit Reversal due to non-payment to vendor

Under the GST law, the input tax credit can be availed by a registered person on goods/services used during business subject to satisfaction of conditions and restrictions set out therein. Accordingly, such a person can avail the ITC on the inward supplies of goods/services, to the extent used during the business of making taxable supplies/ zero-rated supplies.

A recipient of goods/services who receives goods and services on supplier’s credit is also entitled to avail the ITC. However, if the recipient fails to pay the vendor towards the value of the supply plus tax within a period of 180 days from the invoice date, the Recipient is liable to discharge the benefit of the ITC along with interest.

The provision of reversal of ITC has been set out in the second proviso to Section 16(2) of the CGST Act read with Rule 37 of GST rules.

The non-payment to the vendor within 180 days of the invoice date.

In the second proviso to Section 16(2) it sets out that ITC is to be reversed with interest where the recipient of goods/services fails to make the payment to the supplier within a period of 180 days from the date of issue of the invoice by the supplier.

Recipient shall furnish the details of such supply, the amount of value not paid and the amount of ITC availed proportionate to such amount not paid to the supplier immediately following the 180 days from the date of the issue of the invoice. The amount of ITC shall be added to output tax liability in the month in which details are furnished.

The recipient shall be liable to pay interest at the rate notified for the period starting from the date of availing credit on such supplies in GST returns, till the date when the amount added to the output tax liability, is paid.

The taxpayer would be entitled to avail of the ITC once again on payment being made to the supplier.

A registered person, who has availed ITC on goods/services, but fails to pay to the supplier thereof, the amount towards the value of supply plus tax payable thereon, within 180 days from the invoice date, shall pay an amount equal to ITC availed along with interest under section 50, while furnishing the return in FORM GSTR-3B for the tax period immediately following the period of 180 days from the date of the issue of the invoice.

Note

The time limit of availment of ITC for invoices/debit notes in respect of a year within 30th November of the succeeding year or filing annual return [whichever is earlier] as specified in sub-section (4) of section 16 shall not apply to a claim for re-availing of any credit under 2nd proviso to Section 16(2) that had been reversed earlier.