As per section 50(3) of the CGST Act, 2017, where the amount of ITC is wrongly availed and utilized by the registered person, he shall be liable to pay interest on such amount of ITC at the rate not exceeding 24% (Currently, the notified rate is 18%).

As per rule 88B(3) of the CGST Rules, 2017, interest on ITC wrongly availed and utilized shall be payable for the period starting from the date of utilization of such wrongly availed ITC till the date of reversal of such ITC or payment in respect of such amount.

As per the explanation to rule 88B(3), the event of availment of ITC shall be considered as the utilization of ITC where the amount of balance in the ITC ledger falls below the amount of ITC wrongly availed. Then, interest u/s 50(3) is payable on the amount of difference between the balance of ITC ledger and the amount availed.

2. Issues:

a. As per section 88A of the CGST Act, 2017, in the manner of utilization of ITC of IGST ledger, the IGST ledger shall be fully utilized for the payment of IGST, CGST and SGST. After fully utilizing IGST Ledger, then only a person can utilize CGST and SGST ledger. Because of this reason, taxpayerâ€™s CGST and SGST balance sometimes remain unutilized. If he had not availed the wrong ITC of IGST, then he would have utilized CGST and SGST ledger against the payment of output taxes. Therefore, it is the question, for calculation of interest at the time of reversal of ITC, should we take the remaining ITC balance of the head IGST or should we take an aggregate amount of ITC of IGST, CGST and SGST head.

b. Also, in the above case, whether amount of balance related to compensation cess shall also be calculated in the aggregate amount of balance for calculating interest amount?

3. Clarification:

Following clarifications have been made via Circular 192/04/2023-GST dated 17th July, 2023;

a. Since we can utilize the balance of IGST, CGST and SGST head towards the payment of IGST output tax liability, therefore, we shall take the aggregate amount of balance of IGST, CGST and SGST for the calculation of available balance of ITC ledger.

For Example: Mr A has output tax liability of Rs 3000, Rs 2000, Rs 2000 under the head IGST, CGST and SGST respectively. Now he has availed ITC of Rs 4000, Rs 3000, Rs 3000 under the head IGST, CGST and SGST respectively.

While utilizing the availed ITC in his GSTR 3B, as per section 88A, he has utilized Rs 4000 ITC of IGST for the payment of outward tax liability of Rs 3000 and Rs 500 for each head CGST and SGST.

Now, he came to know that out of the ITC availed, ITC of Rs 1500 under the IGST head wrongly availed.

If he had not availed the ITC under IGST head of Rs 1500, then the same shall be paid by the excess balance available in CGST and SGST head.

Therefore, for the computation of interest, aggregate amount of balance of electronic credit ledger shall be considered.

If he had not availed the ITC under IGST head of Rs 1500, then the same shall be paid by the excess balance available in CGST and SGST head.

Therefore, for the computation of interest, aggregate amount of balance of electronic credit ledger shall be considered.

b. Can we consider balance of compensation cess credit in calculating aggregate amount of credit available in ITC ledger?

No, since the credit balance of compensation cess can be used towards payment of compensation cess liability only, therefore, compensation cess available in the credit ledger cannot be taken into consideration while calculating balance of electronic credit ledger for the purpose of explanation to rule 88B(3).