Section 21 of the GST Act deals with the manner of recovery of credit distributed in excess. This means that if an Input Service Distributor (ISD) distributes credit to a recipient in excess of what is allowed under the law, the excess credit must be recovered from the recipient.
The recovery of excess credit is done in accordance with the provisions of section 73 or 74 of the GST Act, as applicable. These provisions deal with the recovery of tax dues from taxpayers. The interest on the excess credit is calculated at the rate of 18% per annum from the date of distribution of the credit till the date of recovery.
The ISD is responsible for recovering the excess credit from the recipient. The ISD can do this by issuing a demand notice to the recipient. The recipient has 30 days from the date of receipt of the demand notice to pay the excess credit. If the recipient does not pay the excess credit within the stipulated time, the ISD can take further action, such as filing a case in court.
It is important to note that the provisions of section 21 of the GST Act apply only to excess credit distributed by ISDs. If a recipient receives credit in excess of what is allowed under the law from a person other than an ISD, the provisions of this section will not apply.
Here is an example to illustrate how section 21 of the GST Act works.
Suppose an ISD distributes input tax credit of ₹10,000 to a recipient. However, the recipient is only entitled to input tax credit of ₹8,000. In this case, the ISD has distributed excess credit of ₹2,000 to the recipient. The ISD will now have to recover the excess credit of ₹2,000 from the recipient. The ISD can do this by issuing a demand notice to the recipient. The recipient has 30 days from the date of receipt of the demand notice to pay the excess credit. If the recipient does not pay the excess credit within the stipulated time, the ISD can take further action, such as filing a case in court.
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