Introduction

CBIC vide notification 49/2019 – Central Tax dated 09^th October, 2019, inserted new sub rule (4) to Rule 36 of CGST Rules, 2017. The text of the rules is re-produced below:

(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37[D1] , shall not exceed 20 per cent of the eligible credit [D2] available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.

The details of the new provision is discussed below by way of questions and answers:

Q1. What is the purpose of this rule?

The Purpose of this rule is to restrict availing Input Tax Credit to the extend on 20% of the eligible ITC reflected in GSTR-2A.

Q2. Will this to be followed while filing each tax period returns?

Yes.

Q3. What is the effective date of this provision?

The effective date is 09^th October, 2019.

Q4. Whether the GSTIN portal will automatically calculate the ITC available?

No. The calculation needs to be made manually on self-assessment basis.

Q5. What are the Invoices/Debit notes on which the above provisions apply?

The restriction of availment of ITC is imposed only in respect of those invoices / debit notes, details of which are required to be uploaded by the suppliers under sub-section (1) of section 37 and which have not been uploaded. So the restriction applies to invoices/debit notes which are not uploaded by suppliers in Form GSTR-1.

Q6. Whether this provision is applicable on Reverse Charge, ISD Invoices, IGST paid on Imports?

No. This provision is not applicable in above cases. The same is clarified by the Board in Circular 123/42/2019– GST dated 11^th November, 2019. But, while calculating the eligible credit by an ISD, this restriction will apply. As ISD is not required to file GSTR-1, the recipient of ISD invoices can claim the credit.

Q7. While calculating the 20%, whether the ITC in respect of Reverse Charge, IGST on Import and ISD Invoices can be considered?

The 20% is available only on the eligible credit reflected in GSTR-2A.

Q8. Will this provision applicable only to invoices/debit notes issued on or after 09^th October, 2019?

This provision is applicable not only to invoices/debit notes issued on or after 09^th October, 2019, but also to invoices / debit notes on which credit is availed after 09.10.2019. This was clarified by the Board in Circular 123/42/2019– GST dated 11^th November, 2019.

Q9. Whether this provision will be applicable to returns filed for tax periods prior to October, 2019, filed on or after 09^th October, 2019?

Yes. Applicable

Q10. Whether the restriction to be calculated supplier wise or Consolidated basis?

The restriction is to be calculated consolidated wise only

Q11. Whether 20% can be calculated on the entire amount available in Form GSTR-2A?

No. The 20% will be available only on eligible credits. The in-eligible credits like section 17(5) blocked credits, Rule 42 (Common Credits etc) needs to be reduced.

Q12. Whether ITC related to Capital Goods being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies (Rule 43) needs to be reduced for calculating the 20% eligible credit?

No, as per Rule 43, the amount of ITC that needs to be reversed should be added to the output tax liability and no need to reverse from the ITC availed.

Q13. Whether the amount of ITC available in GSTR-2A at the time of filing return can be considered for calculating 20%?

As per boards circular, the taxpayer may have to ascertain the same from his auto populated FORM GSTR 2A as available on the due date of filing of FORM GSTR-1 under sub-section (1) of section 37. The due date for filing GSTR-1 is 11^th of the succeeding month. So, all the taxpayers have to download GSTR-2A ideally by in the early hours of the succeeding month as the date wise report is not available in the GSTIN portal.

Q14. Whether the ITC on invoices related to quarterly GSTR-1 can be availed on monthly basis?

No. ITC can be availed only when the same is reflected in GSTR-2A. As per a tweet by CBIC, only 7% of tax payers were opting for quarterly filing and so the same will be covered in the 20%.

Q15. Whether the GSTR-1 needs to be submitted by the supplier to avail the ITC?

As per the above provision, the word used is uploaded. So the submission of GSTR-1 is not seems to be Compulsory.

Q16. What will be the consequences for not following Rule 36(4)?

The consequences will be there will be demand for interest for the excess credit availed. The Assessing Officer may direct to reverse the excess credit availed and if such reversal of ITC is made after the due date for filing return of subsequent month, then the such ITC, even if the invoice reflected in GSTR-2A subsequently, cannot be availed. Many experts are of the view that, interest will be applicable in such cases.

In addition to the interest and reversal if any, penalty proceeding can also be initiated. The penalty will depend upon on which section (Section 73 or Section 74) the notice is issued.

Q17. How the Calculation for availment of ITC to be made in case details of some of the invoices have not been uploaded by the suppliers under subsection (1) of section 37?

The calculation is explained by way of an example:

A taxpayer “R” receives 100 invoices (for inward supply of goods or services) involving ITC of Rs. 10 lakhs, from various suppliers during the month of Oct, 2019 and has to claim ITC in his FORM GSTR-3B of October, to be filed by 20th Nov, 2019.

1. No. of Invoices Uploaded by suppliers                                               70 Invoice
2. ITC available in up-loaded invoices                                       Rs.6,00,000/-
3. 20% of eligible credit of invoices up-loaded                        Rs.1,20,000/-
4. Eligible ITC that can be taken in GSTR-3B [(b)+(c)]             Rs.7,20,000/-

Q18. When and how can the balance ITC can be claimed?

The same is also explained by way of an example, which is a continuation of the example in Q15

Case 1

1. No. of Invoices of October-19, reflected in Novemer-19 GSTR-2A              15 Invoices
2. ITC available on above invoices                                                                    Rs.1,00,000/-
3. 20% of eligible credit on all 85 invoices of Oct-19

(Rs.6,00,000 +Rs.1,00,000) X 20%                                                   Rs.1,40,000/-

• Eligible ITC for Oct-19                                                                                    Rs.8,40,000/-
• ITC availed in Oct-19 GSTR-3B return                                                          Rs.7,20,000/-
• ITC that can be availed in Nov-19 return[ (d)-(e)]                                          Rs.1,20,000/-

Case 2

1. No. of Invoices of October-19, reflected in Novemer-19 GSTR-2A              20 Invoices
2. ITC available on above invoices                                                                    Rs.2,34,000/-
3. 20% of eligible credit on all 85 invoices of Oct-19

(Rs.6,00,000 +Rs.2,34,000) X 20%                                                   Rs.1,66,800/-

• Eligible ITC for Oct-19

(Least of Rs.10 lakhs or Rs.8,34,000+Rs.166,800)                                       Rs.10,00,000/-

• ITC availed in Oct-19 GSTR-3B return                                                          Rs.7,20,000/-
• ITC that can be availed in Nov-19 return[ (d)-(e)]                                          Rs.2,80,000/-

The  taxpayer may avail full ITC in respect of a tax period, as and when the invoices are uploaded by the suppliers to the extent Eligible  ITC/ 1.2. In the above example (Case 2), the suppliers had uploaded more than invoices having ITC of Rs.8,33,333.33 (Rs.10,00,000/1.2), and hence the tax payer can avail full ITC to the extent of Rs.10 Lakhs.

Q19. The Supplier had uploaded GSTR-1, but not paid the tax. Whether the same can be considered for calculating 20%?

Rule 36(4), talks about eligible credits. As per Section 16, in order to take ITC, payment of taxes and filing of return under section 39 (GSTR-3B as of now) is some of the eligibility conditions. In the case of same month return, as the due date for filing GSTR-1 falls first and the due date for filing GSTR-3B is at a later date, the tax payer can take credit based on the entry if GSTR-2A. If the tax is not paid or GSTR-3B return is not filed, it is advisable to reverse such Input Credit as it’ll be a contravention to the provisions of the Act.

Q20. What are all the other issues that may arise due to this provision?

1. All quarterly GSTR-1 filers may be forced to opt for monthly filing
2. Invoice not reflected in GSTR-2A, even though the same is uploaded by the supplier due to technical glitches
3. Another case of litigation, if officers ask to reverse ITC for non-compliance

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 [D1]GSTR-1

 [D2]Section 17(5) In-eligible Credit – Sec.42 common credit

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