Rule 37 and the 180-day rule, what has to be paid back when a supplier is not paid

Where the rule comes from

The obligation is in the Act, not only the Rules. The second proviso to Section 16(2) says that where a recipient fails to pay the supplier the value of the supply and the tax on it within 180 days from the date of the invoice, an amount equal to the credit availed shall be paid by the recipient, with interest under Section 50. The third proviso allows the credit to be taken again when the payment is made. Supplies taxed on reverse charge are outside the rule, because there the recipient pays the tax itself.

Rule 37 supplies the mechanics: how much, in which return, and how it comes back.

The rule as it stands

Rule 37 was rewritten with effect from 1 October 2022 by Notification No. 19/2022-Central Tax. The earlier version tied the reversal to FORM GSTR-2, a return that never became operational. The current sub-rule (1) requires the recipient to pay or reverse an amount equal to the credit availed on the supply, proportionate to the amount not paid to the supplier, with interest under Section 50, in the GSTR-3B for the tax period immediately following the period of 180 days from the date of the invoice.

The words "whether wholly or partly", "or reverse" and "proportionate to the amount not paid" were added by Notification No. 26/2022-Central Tax dated 26 December 2022, with effect from the same 1 October 2022. Between those two notifications the text could be read as requiring the full credit to be paid even where most of the invoice had been settled; the amendment removed that reading back to the start.

Three things that are treated as paid

The provisos to Rule 37(1) take some amounts out of the calculation altogether:

• the value of a supply made without consideration under Schedule I (for example, between related persons or distinct persons) is deemed to have been paid;
• an amount added to the value under Section 15(2)(b), meaning an amount the supplier was liable to pay but which the recipient paid, is deemed to have been paid;
• supplies on reverse charge are excluded by the Act itself.

Working out the date and the return

The 180 days run from the date of issue of the invoice. Counting from the day after the invoice date, an invoice of 20 March 2026 reaches its 180th day on 16 September 2026. The period in which the 180 days end is September 2026, so the amount goes into the GSTR-3B for October 2026, the tax period immediately following. A quarterly filer reports it in the return for the quarter containing that month.

How much. On an invoice of ₹1,18,000 carrying credit of ₹18,000, where ₹59,000 had been paid by the 180th day:

• unpaid proportion: ₹59,000 ÷ ₹1,18,000 = one half;
• amount to pay or reverse: ₹18,000 × one half = ₹9,000.

Payments are normally applied to the invoice as a whole, including its tax. Where a contract or a ledger allocates a part payment differently, keep that allocation on record; the rule itself does not prescribe one.

Interest

Rule 37 requires interest under Section 50. Since Section 50(3) was substituted by the Finance Act, 2022 with effect from 1 July 2017, interest on credit that is wrongly availed is payable only where the credit is availed and utilised, and Rule 88B(3) measures it from the date of utilisation to the date of reversal or payment. A balance lying unused in the electronic credit ledger is not utilised. The rate is 18%.

Getting the credit back

Rule 37(2) allows the credit to be re-availed once the supplier is paid, and Rule 37(4) provides that the time limit in Section 16(4) does not apply to that re-availment. A payment made two years later still brings the credit back. Since 1 October 2023 the third proviso to Section 16(2), as amended by the Finance Act, 2023, requires the payment to be made to the supplier; a payment to anyone else does not revive the credit.

For reporting, Circular No. 170/02/2022-GST asks for the reversal to be shown at Table 4(B)(2) of GSTR-3B (reversals that can be reclaimed), and the reclaimed amount at Table 4(A)(5), with the same amount also shown at Table 4(D)(1). Showing the reversal in 4(B)(1) instead treats it as permanent and makes the later reclaim harder to support.

Rule 37A is a different rule

Rule 37A, inserted by Notification No. 26/2022-Central Tax, has nothing to do with paying the supplier. It deals with a supplier who has reported the invoice in GSTR-1 but has not filed GSTR-3B for that period by 30 September following the end of the financial year. The recipient must reverse the credit in a GSTR-3B filed by 30 November; if it is not reversed by then, it is payable with interest. The credit can be re-availed after the supplier files the return.

The two rules can apply to the same invoice. One turns on the recipient's payment, the other on the supplier's filing, and the working paper should keep them apart.

For the working paper

Officer:

• Rule 37 cannot be tested from the returns alone, because payment to the supplier is not in them. The purchase register or ledger decides. Desktop check A27 lists invoices older than 180 days for verification against those records; it does not establish non-payment.
• Check that reversals were reported at Table 4(B)(2) and reclaims at 4(A)(5) and 4(D)(1) (desktop check A29).
• Where interest is in issue, establish whether and when the credit was utilised before computing it.

Practitioner:

• Run an ageing of payables against the invoice dates each month, and reverse in the GSTR-3B for the month after the 180 days end; reversing earlier is permitted and limits any interest.
• Keep proof of payment dates for every reclaim.
• Deal with deemed-paid items (Schedule I supplies, Section 15(2)(b) amounts) separately so they are not reversed by mistake.

The Rule 37 calculator works through the date, the proportion and the return for a single invoice.