Recently, notification no 49/2019-central tax on 9th October, 2019 has come restricting the input tax credit to 120% of the eligible input tax credit on the basis of invoices actually uploaded by supplier under section 37(1). We have analyzed the notification in detail and below is the mechanism how to arrive at this 120% and what are the complications in this notification.
New Rule
Rule 39(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, shall not exceed 20 per cent. of the eligible credit 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.”
Implementation Mechanism
GSTR-2A has following components:
A. ITC of invoices that are available with the
B. ITC of invoices that are not available with the recipient as they do not pertain to him i.e Invoice uploaded by supplier under Wrong GSTIN.
C. ITC of invoices that are not available with the recipient but pertain to Eg. Airline invoices, bank charges (as they are received later).
D. ITC pertaining to block credit as per Section 17(5).
E. ITC attracting a reverse
*Assumed the filing status is filed. Not filed status has to be excluded.
ITC that can be availed shall be 120%* A, subject to satisfaction of eligibility criteria stipulated below:
Eligibility criteria to claim input tax credit:
Please note that part of tax credit which belongs to A as discussed above shall fulfill following criterion also to become eligible tax credit:
- Recipient is in possession of a tax invoice;
- Recipient has received the goods or services or
- Tax charged in respect of such supply has been actually paid to the Government,; and
- Receipient has furnished the return under section 39
Difficulties/ Problems
1. Tax period covered is not specified:
By virtue of Section 37 of CGST Act, supplier can upload or amend the invoices for financial year up to due date of filing of return of September or second quarter following the end of the financial year to which such details pertains or the actual date of furnishing of relevant annual return, whichever is earlier. Further, as per section 16 of CGST Act, input tax credit can be claimed by recipient when he is in possession of tax invoice or debit notes issued by supplier registered under this Act or such other tax paying documents as may be prescribed and also he has received the goods or services or both.
Thus, what are the implications if the supplier uploads the invoice in the later month return? Notification doesn’t specify the period to be covered. It is unclear whether the 20% clause shall be applied monthly or quarterly or annually? Hence, the interest liability is also questionable.
Illustration
Mr. A issues a tax invoice to Mr. B in Oct 2019. Mr. B claims ITC of the same in Oct 2019. Mr. A uploads it in Sep 2020 return (invoice date of Oct 2019).
| Case | Open Issues |
| “Mr. B” voluntarily reverses the ITC in March 2020 by virtue of notification no. 49/2019 and reclaims in Sep 2020. | Do “Mr. B” need to pay interest on the reversal done in March 2020?
Would Mr. B be empowered to re-claim the tax credit that he has reversed in March 2020, post September 2020 time- limit? |
| Department issues a notice in December 2020 for the excess ITC claimed for tax period Oct, 2019 to Sep 2020 (assuming | Can the officer ask “Mr. B” to pay interest even though the invoice has been uploaded by the supplier at a later date? |
2. Non-clarity on implementation date: The notification specifies that the Rule is effective from Oct 9, 2019. Now the question arises, do esthe taxpayer has to consider this clause for Sep 2019 return as well or it has to be from Oct 2019 return.
Eligibility of tax credit is to be seen at the time of receipt of supplies and not at any period thereafter. Eligibility needs to assessed strictly accordingly to the law in place as on the date of procurement/ recording of such procurement in books. This new law was inexistent on 30 September, 2019, thereby we believe this condition would not be applicable to returns for the period till 30 September, 2019. However, so as to take a conservative/ balanced tax position we shall assume that this law is made applicable for supplies recorded on or after 1 October 2019.
3. Dual hardship on taxpayer: No clarity has been provided with respect to exclusion of reversal made as per Rule 42 & This may lead to dual hardship on the taxpayer by way of double reversal. Let us discuss this concern with an example.
Illustration:
Input reflecting in GSTR-2A is INR 60 and ITC claimed by the recipient is INR 100. Thus, he has to reverse the ITC of INR 28 (100-120% of 60) as per the notification.
Further, the recipient also has some exempted outward supplies and thereby is required to reverse ITC on account of the same.
| Particulars | As per notification | Logical point of view |
| ITC claimed by recipient | 100 | 100 |
| Input reflecting in GSTR- 2A | 60 | 60 |
| Eligible input as per notification | 60 x 120% = 72 | 60 x 120% = 72 |
| Reversal of ITC | 100 – 72 = 28 | 100 – 72 = 28 |
| Reversal as per Rule 42 or Rule 43 | 50 % of 100 = 50 | 50% of 72 = 36 |
As per our view, currently reversal shall be made for INR 50 as there is no amendment in Rule 42 and Rule 43. But logically reversal shall be of INR 36 as assessee had already made proportionate reversal of tax credit, otherwise it will result in double tax impact.
4. Impact of amendment made by the supplier: There can be a case that the amendment is made by the supplier in invoice in subsequent month but recipient had already availed input tax credit on the basis of original details. This will create mis- match as per GSTR-2A and actual credit availed by recipient.
What is to be done in the said case?
Illustration:
Let say Mr. A made sales of goods to Mr. B in October of INR 100 and accordingly uploaded his invoice and filed his return timely in November. Now input is reflecting in GSTR-2A and Mr. B had claimed input on this invoice. Further, in February Mr. A made an amendment in invoice and reduced the credit amount to Rs 80. Now this amendment of invoice results as excess credit claimed in October and will create mis- match as per GSTR-2A.
5. Implications of scrutiny in future: In case of scrutiny in later years if it is found that credit was not eligible, then department may ask to reverse the ineligible credit. Further, the amount of reversal required to be made as per department will be ineligible credit and accordingly by application of this notification will be checked on only for eligible tax credit. This may result in more reversal and interest liability thereon.
Illustration
- The input tax credit in GSTR-3B of INR 100
- Input reflecting in GSTR-2A is INR
- Max ITC that can be claimed: INR 84 (70+ 20% of 70).
- In September month of following year, recipient had made the reversal of INR 16 (100-84).
- After 4 years scrutiny is held and INR 40 is declared as ineligible input and required to be
Now the question is how to compute the excess ITC claimed and to be reversed.
| Particulars | As per department | Logical point of view |
| Input claimed in GST-3B | 100 | 100 |
| Input reflecting in GSTR- 2A | 70 | 70 |
| ITC can be claimed as per notification | 84 | 84 |
| ITC Reversed as per the notification | 16 | 16 |
| In ineligible credit as per scrutiny | 40 | 40 |
| New computation | ||
| Eligible credit after scrutiny | (70-40) x 120% = 36 | (70-(40-16 being already reversed) x 120% = 55.20 |
| ITC to be reversed | 84-36 = 48 | 84-55.20 = 28.80 |
We believe this would lead to legal debacle between taxpayer and tax officers.
6. Impact of audit finding at various intervals of time: During a departmental audit, they may require reversal of input tax credit more than This will cause internal ratio of 20% to change, thereby pushing for an additional tax reversal.
| Claimed | GSTR 2A | Disallowance of ITC | Net ITC Claimed | Eligible GSTR 2A | 120% of Eligible GSTR 2A | Disallowance under Notification
49 |
| 100 | 85 | 0 | 100 | 85 | 102 | No additional dislloance |
| 100 | 85 | 20 | 80 | 65 | 78 | 2 |
| 100 | 85 | 40 | 60 | 45 | 54 | 6 |
This table interprets that any reversal of input tax credit may require additional reversal of input tax credit as per this notification also. Thus, the notification would have a spill-over effect.
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