NON PAYMENT TO CREDITORS WITHIN 180 DAYS UNDER GST

Section 16 read with Rule 37 (2) Non-Payment within180 Days 

The reversal of the ITC is based on the provisions given in Section 16 of the CGST Act,2017.

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  (180Days) 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.

 As a dealer, you would have availed ITC on inward supplies. But if you fail to pay the invoice amount to the supplier within 180 days the ITC must be reversed. If part of the invoice is paid the ITC will be reversed on a proportionate basis.

This means that the business must maintain the creditors aging and basis on that they must reverse the Input Tax Credit. In big organizations, it will be very challenging as they have lots of transactions and maintained from various locations. This process would be very easy if the accounting or ERP they are using supports the same. Though it looks like a complex process it would be simple if the technology is used in the right process. 

Also, the amount of ITC to be reversed should be further segregated into IGST, CGST, SGST, and Cess. And it should be reversed with Interest @ 24% p.a.

SOURCE : CGST Act,2017 read with CGST Rules,2017

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