Section 21 of GST – Manner of recovery of credit distributed in excess
Where the Input Service Distributor distributes the credit in contravention of the provisions contained in section 20 resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipient(s) along with interest, and the provisions of section 73 or 74, as the case may be, shall mutatis mutandis apply for determination of amount to be recovered. Related provisions of the Statute:
Introduction
The CGST Act clearly lays down that credit distribution is not ‘to self’, that is, a registered taxable person cannot distribute credit to himself. Each registered person being a distinct person u/s 25, must distribute to another registered taxable person but having the same PAN to whom the credit is most accurately attributable. And the consequence of incorrect distribution, due to inadvertence or misapplication of the provisions, are discussed here.
Analysis and Updates
Analysis
(i) Excess Credit distributed in contravention of provision: Excess credit distributed to one or more recipient of credit in contravention of ISD provision under Section 20 is recoverable from the recipient of such credit along with Interest. The recovery will be under the provisions of Section 73 or 74. Example-1 Total Credit Available to ISD is 15,00,000/- & the credit distributed to all the units is Rs 16,50,000/- (i.e. Delhi 10,00,000, unit Jaipur Rs 4,00,000 & unit Gujarat Rs 2,50,000). What will be the consequences? Solution: The excess credit of 1,50,000 (Rs 16,50,000- Rs 15,00,000) distributed will be recovered from the recipient along with interest and the provisions of section 73 or 74 shall apply mutatis mutandis for effecting such recovery. Example-2 Total Credit Available to ISD is Rs 15,00,000/- & the credit should have been distributed equal to all the units as all units had equal turnover, however credit distributed in violation of Section 21, as under: Delhi Rs 7,00,000, Jaipur Rs 6,00,000, Gujarat Rs 2,00,000. What will be the consequences? Solution: The excess credit of Rs 2,00,000 (Rs 7,00,000- Rs 5,00,000) shall be recovered from Delhi and Rs 1,00,000 (Rs 600,000 – Rs 5,00,000) shall be recovered from Jaipur along with interest and the provisions of section 73 or 74 shall apply mutatis mutandis for effecting such recovery.
Comparative review
Earlier recovery provision was specified in Rule 14 of CENVAT Credit Rules. The CENVAT credit taken or utilized wrongly or has been erroneously refunded, was recovered along with interest under the provisions of sections 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act. Earlier, there was no specific provision for excess distribution of credit by ISD. Now specific provision is provided in the GST law providing for recovery of amount along with interest. Further, the relevant period for recovery of excess amount distributed is also provided in GST law. Recommended Articles –
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