Circular 192/2023-GST clarifies that interest under Section 50(3) on wrongly availed input tax credit arises only when that credit is actually utilised. If the balance in the electronic credit ledger never fell below the amount of the wrongly availed credit, the credit is treated as not utilised, and interest may not be payable.
The issue the circular addresses
Section 50(3), read with Rule 88B, charges 24% interest on ITC wrongly availed and utilised. The practical question was: if a taxpayer wrongly took credit but had ample other balance and never actually used the wrong portion, is interest due? Circular 192/2023-GST answers this.
The clarified position
The circular directs that the electronic credit ledger balance be examined over the period: if the balance was, at all times, equal to or greater than the wrongly availed credit, that credit is deemed not utilised and no interest is attracted. Interest applies only to the extent the ledger balance fell below the wrong credit, indicating utilisation.
Worked illustration
Wrong ITC availed = Rs.1,00,000. If the credit ledger balance never dropped below Rs.1,00,000 until the credit was reversed, no utilisation occurred — interest is nil. If, however, the balance fell to Rs.30,000 at some point, the wrong credit was utilised to the extent of Rs.70,000, and 24% interest applies on that Rs.70,000 for the period. Verify the day-wise ledger working for your case.
Documentation to keep
Maintain a day-wise credit-ledger movement for any period where wrong ITC is identified, to demonstrate non-utilisation. Reverse wrong credit promptly and record the reason. This single working can decide whether a 24% interest demand stands.
Key takeaways
- Interest on wrong ITC depends on actual utilisation, not mere availment.
- If ledger balance always exceeded the wrong credit, no interest arises.
- Interest applies only to the utilised extent, at 24% per annum.
- Keep a day-wise credit-ledger working as evidence.