Reversal of Input tax credit due to non-payment of consideration for supply

We would like to bring before you one relevant provision on “Input Tax credit”. This provision would be very important starting from the current month of December 2017.

Reversal of Input tax credit due to non-payment of consideration for supply

• Provision in CGST Act 2017:  Proviso to section 16(2)(d) states that “where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon”
 

• Implication of the provision

1. If recipient of supplies fails to pay the supplier within 180 days from date of invoice, the amount of input tax credit shall be reversed along with applicable interest.
2. Such non-payment of the value of invoice must be admitted in the GSTR -2 in the month in which such period of 180 days expires.
3. The said input tax credit can be re-availed on payment of value of supply and tax payable thereon.
4. In case part payment has been made, proportionate credit would be allowed.
5. This condition does not apply for supplies which are payable under reverse charge basis.

In this connection you are requested to kindly assess on month to month basis all the invoices lying unpaid due to any reason, and incase credit period extends beyond 180 days, reversal of ITC shall be made immediately in the same month.