Reversal of ITC in case of non-payment of tax by the supplier by a specified date and mechanism for re-availment

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Background:

Recently, the GST Council’s 48th meeting was held in Delhi on December 17, 2022 under the chairmanship of the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman, in which it was recommended to provide for reversal of Input Tax Credit (“ITC”), in terms of the second proviso to Section 16 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”), only proportionate to the amount not paid to the supplier vis a vis the value of the supply, including tax payable.

The above-mentioned recommendation has been notified vide following notification:

Notification:

The CBIC vide Notification No. 26/2022 – (Central Tax) dated December 26, 2022 has issued ‘the Central Goods and Services Tax (Fifth Amendment) Rules, 2022’ to further amend the Central Goods and Services Tax, Rules, 2017 (“the CGST Rules”) in to order to align with recommendations of the 48th GST Council Meeting held on December 17, 2022, in a following manner:

  • Amended Rule 37(1) of the CGST Rules, w.e.f. October 1, 2022, to state that a registered person, who fails to pay to the supplier, the amount towards the value of such supply whether wholly or partly along with the tax payable thereon, within the time limit, shall pay or reverse an amount equal to the ITC availed in respect of such supply proportionate to the amount not paid to the supplier along with interest.
  • New Rule 37A of the CGST rules has been introduced w.r.t. reversal of ITC by a registered person in the event of non-payment of tax by the supplier by a specified date and mechanism for re-availment of such credit, if the supplier pays tax subsequently.

The Notification can be accessed at: https://taxinformation.cbic.gov.in/view-pdf/1009584/ENG/Notifications

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