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2020 ] REVERSAL OF CREDIT AS PER SECTION 17(5) AND SUO MOTU RE-AVAILMENT J93

REVERSAL OF CREDIT AS PER SECTION
17(5) AND SUO MOTU RE-AVAILMENT
By
Preetha Mahadevan
ADVOCATE

Eligibility to avail credit is provided under Sec-
tion 16 of the Central Goods and Services Tax Act, 2017
(“CGST Act”). Notwithstanding eligibility to avail credit
under Section 16, credit is not available in certain circum-
stances as laid down under Section 17(5) of the CGST Act.
The scenarios envisaged in Section 17(5) are of a nature where the eligibil-
ity is guided by events that occur after the availing the credit under Section 16
has taken place. For example, input tax credit on goods purchased for use in
manufacture which was rightfully eligible (by fulfilling the conditions specified
in Section 16) may be found to be ineligible at a later point in time, due to unfore-
seen future events such as, goods being lost before use in manufacture. In such
cases, the assessee having availed the credit in the first instance, would be re-
quired to reverse the ITC in terms of Section 17(5).
This article firstly seeks to analyse the manner in which credit reversals
under Section 17(5) is to be undertaken and whether interest under Section 50 is
applicable on reversal of credit affected by Section 17(5).
Where credit has been reversed on account of an event specified in Sec-
tion 17(5) occurring, for e.g. goods lost and inventory is written off, the next sce-
nario that is examined in the article is if the event that triggered Section 17(5) get
subsequently nullified, for, e.g., if the inventory that was lost is subsequently
discovered, whether assessees can reclaim input tax credit reversed earlier. The
article also examines if any time limit is applicable for such re-availment of
credit.
Reversal of credits as per Section 17(5)
Section 17(5) restricts eligibility to avail credit. When credit availed earli-
er becomes ineligible by virtue of Section 17(5), the same becomes liable to be
reversed.
Chapter V of the Central Goods and Services Tax Rules, 2017 (“CGST
Rules”), deals with the procedure regarding the availment and utilization of in-
put tax credit. While specific provisions have been prescribed for the manner of
reversal of input tax credit for restrictions imposed on credit for consideration
not paid to vendor within 180 days [2nd proviso to Section 16(2)], exempt goods
[Section 17(1)], etc., no specific mechanism has been prescribed for the manner of
reversal of credit for situations laid out in Section 17(5).
In the absence of any specific mechanism, adjusting the credits in the in-
eligible ITC row specified in GSTR-3B may be sufficient for the purposes of Sec-
tion 17(5).
Does interest liability under Section 50 apply to such reversals?
Sections 73 of the CGST Act provides that ‘where any tax has not been
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