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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Input Tax Credit and Computation of GST Liability

Mehta Traders availed input tax credit on a purchase from Gupta Metals, but Gupta Metals has not paid the tax payable on that supply to the Government. What does Section 41(2) require of Mehta Traders?

Mehta Traders must reverse the credit along with applicable interest in the prescribed manner, because the supplier has not paid the tax on that supply. Section 41(2) imposes reversal with interest, not reversal alone, and does not depend on a 180-day period.

  1. AReverse the credit along with applicable interest, in the prescribed mannerCorrect
  2. BReverse the credit without any interest
  3. CRetain the credit, as the recipient is not responsible for the supplier's default
  4. DReverse the credit only after 180 days from the invoice date

Explanation

Section 41(2) requires credit availed on supplies whose tax has not been paid by the supplier to be reversed along with applicable interest, in the prescribed manner. Reversing without interest is wrong because interest is expressly mentioned. The 180-day period belongs to the proviso in Section 16 about non-payment to the supplier.

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