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CS Executive · Tax Laws and Practice · Input Tax Credit and Computation of GST Liability

Mehta Traders availed input tax credit of Rs 18,000 on goods purchased from Shah Metals. Shah Metals has not paid that tax to the Government. Under section 41(2) of the CGST Act, 2017, what is the correct position?

Mehta Traders must reverse the Rs 18,000 credit along with applicable interest in the prescribed manner, because the supplier has not paid the tax. If Shah Metals later pays the tax, Mehta Traders may re-avail the reversed credit in the prescribed manner.

  1. AMehta Traders keeps the credit permanently as it paid the supplier
  2. BMehta Traders must reverse the credit with applicable interest, and may re-avail it if the supplier later pays the taxCorrect
  3. CMehta Traders must reverse the credit without interest, and cannot re-avail it even if the supplier later pays
  4. DShah Metals alone is liable; Mehta Traders has no reversal obligation

Explanation

Section 41(2) requires reversal of credit, along with applicable interest, in the prescribed manner where the supplier has not paid the tax. The proviso allows re-availing the reversed amount once the supplier pays. The third option wrongly omits interest and re-availment.

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