The levy of interest on availed but unutilised input tax credit is a subject of significant disputes in GST since its implementation
Industry has demanded that interest paid on ineligible input tax credit, which was availed but not utilised under the goods and services tax (GST) regime, be refunded.
At its recent meeting, the GST Council exempted these credits from interest rates with effect from July 1, 2017, when GST was introduced. It, however, did not clarify whether interest already paid will be refunded.
Sandeep Sehgal, director, tax and regulatory, AKM Global, a tax and consulting firm, said, “The treatment needs to be clarified where the taxpayers have already paid interest.” Abhishek Jain, tax partner at EY, said the question is whether a refund would be paid to those taxpayers who have already discharged interest in such a scenario.
“The government should come up with explicit clarity for such taxpayers as well and allow refunds to compliant taxpayers,” he said.
The credit availed remains as a book entry and revenue would be at no loss unless it is utilised for payment or taken back as refund, Sehgal said. He added that levying interest on them has led to many disputes and litigation. This has now been addressed by the council at its recent meeting in Lucknow. The council also reduced the rate of interest from 24 per cent to 18 per cent on ineligible tax credit availed and utilised.
Since the council decided not to levy interest on these ineligible input tax credits, those who already paid interest may take recourse to Article 265 of the Constitution, which states that no tax can be levied except by the authority of law, said Sehgal.
However, there should be clarity under the GST laws as well, he said.
Section 17 (5) of the Central GST Act gives a list of situations where input tax credit will not be available. These include outdoor catering, beauty treatment, life and health insurance and travel benefits extended to employees on vacation such as leave or home travel concession.