Skip to content

CA Final · Indirect Tax Laws · Payment of Tax

Vishal Engineering Ltd. wrongly availed ITC of ₹4,00,000 on 5 June. Its electronic credit ledger balance before the wrongful availment was ₹1,00,000, so the balance became ₹5,00,000. On 20 June it debited ₹2,50,000 from the ledger for a payment through a challan-based payment of another liability (not through a return), reducing the balance to ₹2,50,000. On 30 June it reversed the wrongly availed ITC of ₹4,00,000 along with interest. Applying Rule 88B(3), what is the amount of ITC treated as utilised and the date of utilisation?

₹1,50,000 is treated as utilised on 20 June. The balance fell to ₹2,50,000, which is ₹1,50,000 below the wrongly availed ₹4,00,000, and because the debit was not for payment of tax through a return, the date of debit is the date of utilisation.

  1. A₹1,50,000 on 20 JuneCorrect
  2. B₹2,50,000 on 20 June
  3. C₹4,00,000 on 20 June
  4. D₹1,50,000 on 30 June

Explanation

Per the Explanation, wrongly availed ITC is utilised when the ledger balance falls below the wrongly availed amount, and the extent is the shortfall. The balance fell to ₹2,50,000, below ₹4,00,000 by ₹1,50,000. Since the debit was not through a return payment, clause (b) fixes the date as the date of debit, 20 June. ₹2,50,000 wrongly uses the remaining balance, and ₹4,00,000 treats the whole amount as used.

Did you get it right without looking?

One question tells you little. A timed set on Payment of Tax shows your real accuracy, how long you take and where you lose marks.

Practise Payment of TaxFree diagnostic mock

More Payment of Tax questions