Rule 37 — 180-day ITC reversal
Rule 37 of the CGST Rules requires a recipient to reverse Input Tax Credit, with interest, if the supplier is not paid the invoice value plus tax within 180 days of the invoice date.
Rule 37 enforces the Section 16(2) condition that you actually pay your supplier. If you have not paid the invoice value plus GST within 180 days of the invoice date, you must reverse the ITC and pay interest. Once you pay the supplier, you may re-avail the credit.
Rule 37 operationalises the second proviso to Section 16(2): credit is conditional on payment to the supplier. Miss the 180-day window and the credit must be added back to your output liability, with interest under Section 50, in the return for the period following the 180 days. The good news is that the reversal is reversible — re-avail once you settle the vendor.
For reconciliation this is an ageing problem. You must watch every open payable against its invoice date and know which unpaid invoices are crossing 180 days, ledger by ledger. Rule 37 is often confused with Rule 37A, but they are distinct: 37 is about you not paying the supplier; 37A is about the supplier not paying the tax. Part-payments count proportionately, so a partly-settled invoice needs a proportionate reversal, not an all-or-nothing one.
The Recoup angle: Recoup ages every payable against its invoice date and warns before the 180th day, not after.