GST Council Proposed New Provision for Reversal of ITC in case of Non-Payment of Tax by Suppliers

The GST Council 48th Meeting held today in National Capital Delhi through virtual mode and chaired by the Union Finance Minister Smt Nirmala Sitharaman. The Finance Ministers of the states/Union Territories of India were presented.

The Council Meeting has decided to incorporate a new provision in the CGST Act allowing the taxpayer to reverse the input tax credit if the supplier fails to pay tax by a set deadline. The council also proposed a system for re-availability of such credit if the supplier pays tax later.

GST Council recommended to insert Rule 37A in CGST Rules, 2017 to prescribe the mechanism for reversal of input tax credit 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. This would ease the process for complying with the condition for availment of input tax credit under section 16(2)(c) of CGST Act, 2017.

Rule 37(1), as it existed prior to October 1, 2022, stated that only the amount proportionate to the invoice value that has not been paid after 180 days must be totalled.

Reversal of ITC under GST rules means that the credit for previously used inputs is now added to the output tax liability, thereby nullifying the credit claimed previously. Payment of interest may also be required depending on when such reversal occurs.