QUESTION

The applicant keeps on paying the RCM and taking the Input tax credit on few of the services which have been exempted by the GST council after October-2017. Is the applicant needs to reverse the input tax credit avail by them on the services for which they have paid RCM and have been exempted under RCM after october-2017?

ANSWER

Facts of the case: The applicant keeps on paying the RCM and taking the ITC on few of the services which have been exempted by the GST council after October-2017. Is the applicant needs to reverse the ITC availed by them on the services which have been exempted under RCM wef October-2017?

Reply: The correct procedure to be followed in this case would be to reverse the ITC and file a refund claim of the RCM wrongly paid.
But in this case, the time limit mentioned in section 54 will apply and some part of the tax paid which falls in the timeline of more than two years will be disallowed.
In addition to this, you have to reverse the ITC with interest but tax wrongly deposited by you will be refunded by the revenue without interest.
The reverse will be immediate but for the refund, you don't know how much it will take.

So you may do nothing for the RCM already paid and the credit taken. In case an objection is raised by the Revenue then you can take the following ground:
Credit is taken under section 16 read with section 17 and there is nothing done against these sections. There is no intention of fraud because the tax is paid in cash and credit of it is availed.

Further if you are paying tax in cash even if there is a balance in ITC account, then it is an additional strong point for you. (Reply dt. 28/06/2021)