One very common issue is whether interest is payable under Section 50(3) on ITC wrongly availed but not utilized for making payment of output liability. Today’s article would discuss scenario wherein due to error while filling in figures in GSTR3B, higher credit was availed by the Taxpayer but the same was not utilized. Since the Input Tax Credit was wrongly availed due to clerical error therefore the same was not reflecting in GSTR-2A. The issue is whether interest is payable on such wrong availment of Input Tax Credit under Section 50(3) at the rate of 24%. The article restricts itself to cases wherein the GST Credit has been wrongly availed but not utilzed.
The article would briefly discuss the issue vis-à-vis provisions of CGST Act, 2017 without going into the aspect that levy of interest is compensatory in nature and therefore if the Input Tax credit has not been utilized, then why at all levy of interest is there. The article restricts itself to Section 50(3) read with Section 42(10) and Section 38 of CGST Act, 2017 and Rule 69 of CGST Rules, 2017.
Applicability of Section 50(3) of CGST Act, 2017
Before moving ahead, Provision of Section 50(3) is being reproduced herewith for your ready reference-
(3) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (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.
Therefore, Provisions of Section 50(3) of CGST Act, 2017 are applicable in cases wherein undue or excess claim of input tax credit has been made under sub-section (10) of section 42 of CGST Act, 2017.
Provisions of Section 42 are applicable only in cases for matching, reversal and reclaim of Credit and are based on details of inward supply filed by the registered person
The provisions of section 42 are applicable for matching, reversal and reclaim of input tax credit. The relevant provision of Section 42 are as follows:-
42. Matching, reversal and reclaim of input tax credit.— (1) The details of every inward supply furnished by a registered person (hereafter in this section referred to as the ―recipient‖) for a tax period shall, in such manner and within such time as may be prescribed, be matched––
Thus, it can be observed that Section 42(1) provides that details of every inward supply furnished by a registered person for a tax period shall be matched for the parameters as provided there in.
Details of Inward Supply in GSTR-2 were required to be filed under Section 38 of CGST Act, 2017
That for applicability of provision of Section 42, details of inward supply had to be furnished. That detail of inward supply had to be furnished under Section 38 of CGST Act. Further provision of Section 38 of the CGST Act, 2017 is being reproduced herein under:
(5) Any registered person, who has furnished the details under sub-section (2) for any tax period and which have remained unmatched under section 42 or section 43, shall, upon discovery of any error or omission therein, rectify such error or omission in the tax period during which such error or omission is noticed in such manner as may be prescribed, and shall pay the tax and interest, if any, in case there is a short payment of tax on account of such error or omission, in the return to be furnished for such tax period:
It can be observed from the above that Section 38 which provided for filing of GSTR-2 also provided that if recipient has furnished return in Form GSTR-2 and amounts have remained unmatched under Section 42 and 43, then in such case interest would be payable for short payment of tax on account of such error and omission. Therefore, the basic premises of Section 42 rested upon the details of inward supply furnished under Section 38. The return to be furnished under Section 38 was GSTR-2.
That the time limit for furnishing GSTR-2 in Section 38 has not been notified till date
That Form GSTR-2 for the period till date has not been notified till date. Para 2 of Notification No. 32/2018-Central Tax Dated 10th August 2018 for July 2018 to March 2019 for specimen reference is being as follows:-
2. The time limit for furnishing the details or return, as the case may be, under subsection (2) of section 38 and sub-section (1) of section 39 of the said Act, for the months of July, 2018 to March, 2019 shall be subsequently notified in the Official Gazette.
Emphasis Supplied
It is pretty clear from the above that return under section 38 have not been notified in official gazette till date and since the returns have not been notified till date therefore Section 42 itself cannot be used until then since the very basis of Section 42 is the details of inward supplies furnished under Section 38 and matching of the same in the manner as provided therein. Since GSTR-2 itself has not been brought in place therefore its matching procedure and implications of non-matching of the credit as provided under section 42 (8) and 42(10) cannot also be implemented.
Rule 69 of CGST Rules provide that matching under Section 42 of CGST Act, 2017 of Details of Inward Supply should be extended if the due date of filing of GSTR-2 under section 38 has been extended
Relevant Extract of Rule 69 is being reproduced hereunder:
69. Matching of claim of input tax credit .-The following details relating to the claim of input tax credit on inward supplies including imports, provisionally allowed under section 41, shall be matched under section 42 after the due date for furnishing the return in FORM GSTR-3-
(a) Goods and Services Tax Identification Number of the supplier;
(b) Goods and Services Tax Identification Number of the recipient;
(c) invoice or debit note number;
(d) invoice or debit note date; and
(e) tax amount:
Provided that where the time limit for furnishing FORM GSTR-1 specified under section 37and FORM GSTR-2 specified under section 38 has been extended, the date of matching relating to claim of input tax credit shall also be extended accordingly:
That it can be clearly seen that the rule provides that if the time limit for furnishing of GSTR-2 under section 38 has been extended then the date of matching relating to claim of input tax credit shall also be extended accordingly. Since Form GSTR-2 for the period till date has not been notified till date and Para 2 of Notification No. 32/2018-Central Tax Dated 10th August 2018 being reproduced herein below for specimen reference for July 2018 to March 2018 is as follows:
2. The time limit for furnishing the details or return, as the case may be, under subsection (2) of section 38 and sub-section (1) of section 39 of the said Act, for the months of July, 2018 to March, 2019 shall be subsequently notified in the Official Gazette.
That since till date due date for filing of details of inward supply has not been notified till date, therefore matching as per the provisions of Section 42(1) read with Rule 69 is not required to be done till date. The date has automatically been extended until the date of filing of GSTR-2 for the relevant period.
That since the matching under Section 42 is only possible on filing of details of inward supplies under Section 38 and date of filing of Return under GSTR-2 under section 38 has not been notified till date, therefore the date of matching by virtue of First Proviso to Rule 69 has also been extended. Once the date of matching under Section 42 read with Rule 69 has been extended then any interest to be leviable on account of non compliance of discrepancies as highlighted under the provision of Section 42 cannot be levied. It was held by Hon’ble Bombay High Court in the matter of Municipal Council Morshi vs Tulsiram on 10 March, 1977 Equivalent citations: AIR 1978 Bom 92 that
24. In my judgment, there is considerable force in this contention urged on behalf of the petitioner and it must be upheld, and in view of the circumstances pointed out above it must be held that the law would excuse non-performance of an act which became impossible of performance on account of reasons beyond the control of the landlord. The maxim lex non cogit ad impossioilia (the law does not compel impossibilities) would govern the circumstances of the case on point. Maxwell on Interpretation of Statutes, 10th Edition observed at p. 373 as follows :
‘Enactments which impose duties on conditions are, when these are not conditions precedent to the exercise of a jurisdiction, subject to the maxim lex non cogit ad impossibilia aut inutilia. They are understood as dispensing with the performance of what is prescribed when performance of it is idle or impossible. In such cases, the provision or condition is dispensed with when compliance is impossible in the nature of things. It would seem to be sometimes equally so where compliance was, though not impossible in the sense, yet impracticable without any default on the part of the person on whom the duty was thrown’.
It was further held that
29. Thus according to the maxim when doing of some positive act, doing of which is required to be done within the prescribed time and according to the manner indicated by the rules, is made impossible of performance, the penalty for non-performance cannot be reasonably attracted and the non-performance will be excused. Even in a proceeding for mandamus, a return which is shown to be legally impossible of performance is a good return. (See Tapping on Mandamus, page 359).”
Emphasis Supplied
Hon’ble Apex Court in the matter of Cochin State Power And Light … vs State Of Kerala on 25 February, 1965 Equivalent citations: 1965 AIR 1688, 1965 SCR (3) 187 wherein it as held that
“The performance of this impossible duty must be excused in accordance with the maxim, lex non cogitate ad impossible (the law does not compel the doing of impossibilities), and sub-s(4) of s.6 must be construed as not being applicable to a case where compliance with it is impossible.”
Hon’ble Allahabad High Court in the matter of The Inter College, Through Its … vs The State Of U.P. Through … on 6 January, 2006 (All HC) wherein it was held that Where the law creates a duty and the party is disable to perform it without any default in him and has no remedy over there, the law will excuse him.
Hon’ble Apex Court in the matter of State Of Rajasthan & Anr vs Shamsher Singh on 1 May, 1985 Equivalent citations: 1985 AIR 1082, 1985 SCR Supl. (1) 83 wherein it was held that however mandatory the provision may be, where it is impossible of compliance that would be a sufficient excuse for non-compliance, particularly when it is a question of the time factor.
Therefore, since provisions of Section 42 were to be made applicable and are based upon the mechanism which would have been brought into place provided GSTR-1/2 and 3 would have been brought in place and without the same being brought in place, provisions of Section 42 lacks applicability. Manual Matching as being done today is not something which has been envisaged in Section 42 and neither the required amendments have been made in Rule 69 till date, therefore in the authors opinion, GSTR-2A/GSTR2B might be there but Section 42 provided for entire process and mehanism of matching vis-avis Rule 69. It has to be borne in mind that provision of Section 42 is a complete code in itself for the purpose of levy of interest other than the rate of interest being referred from Section 50. Once the section is complete code in itself and it provides a manner and the procedure for doing the things and if the system itself is not in place for compliance of provisions of that section, then in such case there cannot be a case for non-compliance of the provisions contained in the section itself.
That provisions of Section 50(3) are not applicable in cases where excess credit has been claimed inadvertently but it is applicable on the credit once reversed but reclaimed in contravention of the procedure as mentioned in Section 42(7)
That, Section 42(7) provides that when amount once reversed by the recipient in his return could be reclaimed by him as credit if supplier has declared the details of the invoice or debit note in his valid return within the time specified in sub-section (9) of section 39. In case, the said credit once reversed would have been reclaimed in contravention of the procedure as mentioned in Section 42(7), then interest on such excess claim of credit would have been liable at the rate provided under Section 50(3) of CGST Act, 2017.
In the cases wherein inadvertently higher credit has been claimed, there is no such scenario wherein the credit has been reclaimed after reversal. In the given case, it is an inadvertent error for the purpose of claim of input tax credit. Thus, the given case is not covered by the provisions of Section 50(3) of CGST Act.
If the mechanism as envisaged been in place contravention to provisions of Section 42 would not have occurred since the system itself would have blocked availment of excess credit inadvertently and since the mechanism itself is not in place, therefore there can be no non-compliance of provision of Section 42
That if the claim of input tax credit would have been based upon filing of details of inward supply, then such error could not have occurred. That since credit would not have been claimed there would have been no contravention of provisions of Section 42 and thus no interest payable due to contravention of Section 42. Since credit is only based upon claim of a manual figure in GSTR-3B without the system as envisaged in Section 38 read with Section 42 brought in place, therefore in the absence of such system in place there cannot be a case of levy of interest under section 42 for its non-compliance.
It has to be borne in mind that provision of Section 42 is a complete code in itself for the purpose of levy of interest other than the rate of interest being referred from Section 50. Once the section is complete code in itself and it provides a manner and the procedure for doing the things and if the system itself is not in place for compliance of provisions of that section, then in such case there cannot be a case for non-compliance of the provisions contained in the section itself.
Before levy of interest under Section 50(3) of CGST Act, 2017 there was an entire mechanism in place wherein eligibility of the recipient would have been checked and verified. A Brief description of the same is as follows:
Particulars | Form |
Furnishing of outward supplies by Supplier | GSTR-1 |
Reflection of the entries uploaded by the Supplier to the recipient | GSTR-2A |
Acceptance of the entries by the Recipient and updation of such accepted entries | GSTR-2 |
Communication of Finally Accepted Credit to the recipient | MIS-1 |
Communication of Credit previously found mis-matched but subsequently matched after rectification either by the supplier or recipient | MIS-1 |
Discrepancy to be communicated to the recipient about the credit claimed | MIS-1 |
Discrepancy to be communicated to the supplier about the details of the invoices uploaded | MIS-2 |
It can be observed from the above that Form GSTR-2A and GSTR-2 were supposed to be dynamic forms wherein entries first would have been reflected in GSTR-2A and then upon acceptance would have the data flown into GSTR-2. Now although the Credit is being reflected in GSTR-2A however GSTR-3B is not linked with GSTR-2A. The two forms are separate and are not linked to each other therefore even if the credit of Rs 1 Lakh is being reflected in GSTR-2A, by human error the same might be entered as 1 Crore in GSTR-3B with no restriction as such. Furthermore, apart from GSTR-2A being not linked with GSTR-3B as would have been the case between GSTR-2A and GSTR-2, there is no form MIS-1 and MIS-2 which would have communicated the finally accepted Input Tax Credit to the Recipient or would have been a tool to communicate discrepancy to the supplier and the recipient.
Further, there was a particular timeline wherein the discrepancies would have been communicated between the recipient and the supplier and if the discrepancy would not have been rectified by the supplier or the recipient, then in such case within the specified time limit the discrepancy as persisting would have been added to the output liability of the recipient. The time line as provided is as follows:
Step | Process of Communication, Rectification and Addition to Output Liability |
1 | The discrepancy was to be communicated in Form GST MIS-1 and Form GST MIS-2 to the recipient and supplier respectively through common portal on or before the last date of the month in which the matching was carried out alongwith details of output tax liable to be added |
2 | A supplier to whom any discrepancy was made available was entitled to make suitable rectifications in the statement of outward supplies to be furnished for the month in which the discrepancy is made available. A recipient to whom any discrepancy was made available was entitled to make suitable rectifications in the statement of inward supplies to be furnished for the month in which the discrepancy is made available. |
3 | Where the discrepancy would not have been rectified, an amount to the extent of discrepancy would have be added to the output tax liability of the recipient in his return to be furnished in FORM GSTR-3 for the month succeeding the month in which the discrepancy was made available. |
Further, a recipient would have been able to claim provisional credit of the inward supplies, details of which have been uploaded by the supplier only upon including the same by himself by providing Invoice-wise details and the same being communicated to the supplier for approval. A detailed process for the same was provided under Section 38 read with Rule 59 of the CGST Rules which broadly provided as under-
- Recipient was required to perform actions as listed below on details submitted and communicated to him.
- Verify
- Validate
- Modify
- Or if require, delete
Once the above actions were performed, GSTR-2 of the recipient of the supply was to be prepared. The recipient of the supply was entitled to include details of the inward supplies and credit or debit note received by him in respect of such supplies that have not been declared by the outward supplier in his GSTR-1.
- Communication was to be sent to the supplier for Supplies which were deleted or modified by the recipient or Supplies which were not declared by the supplier but were included in the return by the recipient.
- The details of inward supplies added, corrected or deleted by the recipient in his FORM GSTR-2 under section 38 or FORM GSTR-4 or FORM GSTR-6 under section 39 was to be made available to the supplier electronically in FORM GSTR-1A through the common portal. Supplier would have either accepted or rejected modifications made by recipient. The action of accepting or rejecting the details communicated to the outward supplier was to be done on or before seventeenth day but not before the fifteenth day of the month succeeding the tax period. FORM GSTR-1 furnished earlier by the supplier was to be stood as amended to the extent of modifications accepted by him.
The above mechanism shows that there was an entire system in place for the two way communication between the supplier and the recipient for the claim of credit. There is no such system of communication in place and the forms are also not interlinked with each other. In case such systems would have been in place, the recipient would have been alerted at first at many places for the discrepancy and secondly would not have been able to claim credit in respect of the missing invoices otherwise than by uploading the invoice-wise details. Further, the forms would have been interlinked with each other and last but not the least any credit in respect of missing invoice would have been subject to approval by the supplier and if there would not have been any acceptance by the supplier, provisions al claim of credit by the recipient would have been added back to the output liability of the recipient in a time bound manner. That since there was a detailed process in place, therefore there was a need to have separate provisions for levy of interest for wrong availment. However since the system it self is not in place then in such case, there cannot be a case for levy of interest in such cases. Section 42 provided that once a credit has been reversed but again reclaimed by the recipient but such claim is found to be invalid then such credit would have been reversed and interest would have been payable at the rate of 24% p.a.
Since the process as envisaged in Section 42 has not been brought in place, therefore the following procedure relating to reflection of the input reversed in Output Liability and being debited to Electronic Credit ledger too has not been brought in place
That entire mechanism as provided under Section 42 read with Section 50 and Rule 69 to 72 made thereunder provide that the input tax credit was to be added to the output liability. Further the return prescribed under GSTR-3 was so designed that Input Tax Credit reversed as mismatch in Input Tax Credit was required to be added to the output liability vide Table 6 and Table 8 of Form GSTR-3. Further Rule 85(2) of CGST Rules, 2017 provides that
(2) The electronic liability register of the person shall be debited by-
- the amount payable towards tax, interest, late fee or any other amount payable as per the return furnished by the said person;
- the amount of tax, interest, penalty or any other amount payable as determined by a proper officer in pursuance of any proceedings under the Act or as ascertained by the said person;
- the amount of tax and interest payable as a result of mismatch under section 42 or section 43 or section 50; or
- any amount of interest that may accrue from time to time.
It is pretty evident from the above that as per Rule 85(2)(c) of CGST Rules, 2017 it was electronic liabilty register which was required to be debited with the tax and interest payable as a result of mismatch under Section 42 or Section 43 or Section 50. Further Table 8 of GSTR-3 also reflect that Total Tax Liability consisted of Para 8C which provided for Liability on account of ITC Recredit and Reclaim. Further Table 8C was to be prepared on the basis of Input Tax Credit reversal and reclaim.
That presently the Reversal on account of excess Credit claimed is to be made in Table 4B(2). Further, the reversal made in Table 4B(2) is only debited from the Credit ledger. The Input Tax Credit is not added to the output liability under the Credit Ledger.
Conclusion-The mechanism which was set in place at the time of applicability of GST has not been implemented till date and therefore since the mechanism as required for the applicability of interest under section 42 has not been implemented till date then there cannot be applicability of interest under section 42 read with Section 50(3) itself since provision of Section 42 is a complete code in itself for the purpose of levy of interest other than the rate of interest being referred from Section 50. Once the section is complete code in itself and it provides a manner and the procedure for doing the things and if the system itself is not in place for compliance of provisions of that section, then in such case there cannot be a case for non-compliance of the provisions contained in the section itself.
That since the matching under Section 42 is only possible on filing of details of inward supplies under Section 38 and date of filing of Return under GSTR-2 under section 38 has not been notified till date, therefore the date of matching by virtue of First Proviso to Rule 69 has also been extended. Once the date of matching under Section 42 read with Rule 69 has been extended then any interest to be leviable on account of non compliance of discrepancies as highlighted under the provision of Section 42 cannot be levied.
The link to our previous two articles are as follows:
Is Section 50(1) applicable and Interest to be paid on ITC Wrongly availed but not utilized for making payment of output liability-Part-1-What does the Statute provides-https://gst-online.com/is-section-501-applicable-and-interest-to-be-paid-on-itc-wrongly-availed-but-not-utilized-for-making-payment-of-output-liability-what-does-the-statute-provides/Section 50-Payment of Interest in GST- Subtle differences in the language being used in the Statue regarding Interest Payable-Part-2-https://gst-online.com/section-50-payment-of-interest-in-gst-subtle-differences-in-the-language-being-used-in-the-statue-regarding-interest-payable-part-2/