Clarification on charging of interest under section 50(3) of the CGST Act, 2017, in cases of wrong availment of IGST credit and reversal thereof.

Circular No.: 192/04/2023-GST
Date of Circular: 17th July 2023
Relevant Sections and Rules:

• CGST Act, 2017:
  • Section 50(3): Interest on wrong availment and utilization of input tax credit (ITC)
  • Section 168(1): Power to issue instructions
• CGST Rules, 2017:
  • Rule 88B(3): Interest calculation on wrong availment and utilization of ITC
• Compensation Cess Act, 2017:
  • Section 11 (Proviso): Restriction on utilization of compensation cess credit

Summary of Clarifications Provided:

1. Calculation of Interest When Wrong IGST Credit Is Availed and Reversed:
   Interest under Section 50(3) of the CGST Act read with Rule 88B(3) is chargeable only when the wrongly availed IGST credit is actually utilized.
   To determine utilization:

• The total combined balance of ITC across IGST, CGST, and SGST in the electronic credit ledger is considered.
• If, during the period between wrong availment and reversal, the total balance never falls below the amount of wrongly availed IGST credit, then no interest is payable, even if IGST head alone has insufficient balance.
• Interest is applicable only to the extent of shortfall in the total ledger balance below the wrongly availed amount.

2. Compensation Cess Credit Is Excluded from Utilization Calculation:
   Credit of Compensation Cess cannot be utilized for payment of CGST, SGST, or IGST as per Section 11 of the Compensation Cess Act.
   Hence, compensation cess balance is not to be considered in computing the available credit for determining whether the wrongly availed credit was utilized.

Source: Circular No.: 192/04/2023-GST