QUESTION

As per the Second proviso of 16(2), incase of failure to make payment within 180 days reversal of ITC is applicable. However if there is contractual condition under which payment is to be made after 2 years.whether contractual conditions overrule statutory provision. As it is not a failure but contract terms, for non payment within 180 days.

ANSWER

Facts of the case: As per the Second proviso of 16(2), incase of failure to make payment within 180 days reversal of ITC is applicable. However if there is contractual condition under which payment is to be made after 2 years. whether contractual conditions overrule statutory provision.

Law applicable: Section 16 of CGST Act

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,''-------------------------------
Provided further that 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 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:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

Interpretation: As per proviso to section 16, if payment is not made within 180 days from the date of issue of invoice then an amount equal to the ITC availed is required to be reversed.
Any contractual agreement between two parties can't overrule the law.
However, there can be a different view taken by the Court of law but for that you have to follow legal procedure after the credit is disallowed by the revenue audit.

Conclusion: Contractual agreement can't overrule the law. Thus if payment is not made within 180 days from the date of issue of invoice then an amount equal to the ITC availed is required to be reversed. However you can go for appeal after credit is disallowed by the revenue audit.  (Reply dt.31.07.2020)