The Central Board of Indirect Taxes and Customs (CBIC) has issued GST Circular 192/04/2023 dated July 17, 2023, providing clarification on the charging of interest under section 50(3) of the CGST Act, 2017. This clarification addresses concerns raised by the trade community regarding the wrong availment of IGST credit and its reversal. Let’s explore the key points of the circular.
Clarification on the Calculation of Interest for Wrong Availment of IGST Credit
Issue #1: Consideration of Total Input Tax Credit for Interest Calculation
The circular addresses the query raised regarding the calculation of interest under rule 88B of the CGST Rules when a registered person wrongly avails IGST credit. The question is whether only the balance of IGST credit or the total input tax credit (IGST, CGST and SGST combined) available in the electronic credit ledger should be considered.
Clarification: According to the CBIC, for the calculation of interest under rule 88B, it is important to consider the total input tax credit available in the electronic credit ledger, including IGST, CGST and SGST. Any input tax credit under these three heads can be used for the payment of IGST liability. Therefore, the balance under all three heads should be taken into account when determining if the balance in the electronic credit ledger has fallen below the amount of wrongly availed IGST credit. If the total input tax credit balance has never fallen below the amount of wrongly availed IGST credit from the time of availing to the time of reversal, no interest liability will be applicable. However, if the total balance falls below the wrongly availed IGST credit, interest will be charged as per section 50(3) of the CGST Act, along with section 20 of the Integrated Goods and Services Tax Act, 2017 and sub-rule (3) of rule 88B of the CGST Rules.
Issue #2: Exclusion of Compensation Cess Credit for Interest Calculation
Another query addressed in the circular pertains to the inclusion of compensation cess credit in the electronic credit ledger while calculating interest under sub-rule (3) of rule 88B of the CGST Rules for wrongly availed and utilized IGST, CGST or SGST credit.
Clarification: The CBIC clarifies that the credit of compensation cess, which applies to the supply of goods and services leviable under the Goods and Services Tax (Compensation to States) Act, 2017, cannot be utilized for the payment of any tax under the CGST, SGST or IGST heads, nor for reversing credit under these heads. Therefore, when calculating interest under sub-rule (3) of rule 88B, the credit of compensation cess available in the electronic credit ledger should not be considered for wrongly availed and utilized IGST, CGST or SGST credit.
CBIC GST Circular 192/04/2023 dated 17/07/2023: Clarification on Charging of Interest for Wrong Availment of IGST Credit
Implications and Compliance
Understanding the clarifications provided in GST Circular 192/04/2023 is crucial for businesses to ensure compliance with the GST laws. Here are the key implications to consider:
i) Monitoring Total Input Tax Credit: Businesses need to monitor the total balance of input tax credit in their electronic credit ledger under the heads of IGST, CGST and SGST combined. This is especially important during the period from the wrong availment of IGST credit to its reversal. By maintaining the balance above the amount of wrongly availed IGST credit, businesses can avoid interest liabilities.
ii) Exclusion of Compensation Cess Credit: When calculating interest for wrongly availed and utilized IGST, CGST or SGST credit, businesses should exclude the credit of compensation cess available in the electronic credit ledger. This credit cannot be used for offsetting taxes or reversing credit under other GST heads.
Conclusion
The issuance of GST Circular 192/04/2023 by the CBIC provides much-needed clarification on the charging of interest for the wrong availment of IGST credit and its subsequent reversal. The circular emphasizes the consideration of the total input tax credit in the electronic credit ledger, including IGST, CGST and SGST, for interest calculation purposes. It also highlights the exclusion of compensation cess credit for such calculations. Trade entities can now refer to this circular to ensure compliance with the provisions of the CGST Act and the CGST Rules, thus avoiding any confusion regarding the charging of interest in cases of wrongly availed IGST credit.
Disclaimer: While reasonable efforts have been made to ensure the accuracy and reliability of the information presented in this article, it should not be considered as professional tax advice or guidance. For compliance, the readers are advised to directly refer to the relevant laws, regulations and notifications issued by the appropriate authorities. |
CA Abhinav Aggarwal is a qualified Chartered Accountant and ICAI member since 2010. He holds vast experience in Audit, Income Tax & GST and is a passionate writer on the CA profession and related topics.