The Rule 36(4) of the CGST Rules has been inserted vide notification No. 49/2019, Central Tax dated 09-10-2019. Since after the introduction this has made a lot of hue and cry among the tax payers . Some problems of the tax payers are really genuine . Although the government has come up with the some clarifications even though there are many issues which are needed to be resolved to avoid the unnecessary hardship faced by the innocent tax payers .
The rule 36(4) in words of the law is “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 10 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.”
Input Tax Credit ITC
However it is important to note that some credit of input tax are outside the purview of Rule 36(4) because this rule categorically says that it is applicable only upon the what is mentioned in Section 37(1) and thus for example some credit which are outside the rule 36(4) like -ITC available on imports, ITC available on tax paid under reverse charge basis, ITC received from input service distributor etc..
In simple words and which is according to the provisions of the Rule 36(4) we can say that the credit of unuploaded invoice can be taken for any month is the 10% of the credit reflected in GSTR-2A on the 11th of the succeeding month. This is something important that we can take only the credit of the invoices uploaded by the suppliers up to the date on or before the 10th day of the month succeeding the said tax period . We have to be careful about the calculation of Input Tax Credit calculation because the GSTR-2A is the dynamic document and keep changing from time to time as per the invoices uploaded into the GST portal . Further we must make a self audit of the availability of the ITC because the Rule 36(4) clearly spelt out that the 10% capping will be upon the eligible credit . One should bear in mind that the wrongful availment of the input tax credit attracts penal consequences .
Regarding the above provision some questions arises in my mind and which are as under
i) What if the supplier after the last date of filing of GSTR-1 cancels the bill, then whether the receiver of the supply is required to pay the differential tax with interest as applicable?
ii) What if the supplier has taken the option of filing quarterly GSTR-1 , then whether the receiver of the supply is bound to pay the tax on monthly basis and afterwards claim the refund of credit accumulated?
iii) The law do not make it emptily clear that whether the 10% capping is related to each tax head separately like IGST Credit, CGST Credit , SGST Credit , UTGST Credit ? Probably this will be calculated each tax head wise because in my opinion the intention of the law is as such even though not spelt out in the form of specific provisions.
iv) After the introduction of Rule 36(4) , the credit will be restricted even if the registered person fulfills the conditions as mentioned in Sec 16(2) of the CGST Act 2017 for availing input tax credit . Further Sec .41 of the CGST Act allows the registered person to take input tax credit on provisional basis .In all such cases a question arises that how can rule {i.e.Rule 36(4)} can supersede the provisions of the act ?
To clear the air regarding the applicability of Rule 36(4) , recently the government has issued some clarification through Circular No. 123/42/2019– GST, dated 11.11.2019. The key points of the clarification are as follows:
a. The restriction of availability of credit is applicable on invoices/ debit notes on which credit is availed on or after 09.10.2019.
b. Firstly no restriction through the common portal i.e. the tax payer has to make compliance of the law on its own. This one way gives liberty to the tax payer in the form that he will not face the system related issues but in other way cast greater responsibility in the form correct calculation , reconciliation etc. Because wrongful availment of credit is punishable under the GST law.
c. The restriction is applied only on the invoices to be uploaded u/s 37(1). The plain reading of the Sec 37(1) of the CGST Act speaks that the condition as envisaged in this section will not apply to the , Input Service Distributors , Composition dealers , tax payers who are required to deduct tax at sources and the tax payer who are required to collect tax at source , Trans-1 credit .
d. The blocked credit under 17(5) will not be considered while calculating the limit of 10%.
e. The availability of credit will be on the basis of total credit of all suppliers.
f. The credit availability will be checked and calculated as on the date of due dated of filing of GSTR-1 u/s 37(1) of the CGST Act . In other words if the due of filing of GSTR-1 for the suppliers is on 10th of the succeeding month then we have to calculate our credit availability on the 11th day (i.e. on the basis of GSTR-2A.)
g. The credit that will be available to any registered dealer will be 10% of the total eligible credit details of which are already uploaded on the GST portal as on the due date filing of GSTR-1 for that month. The balance credit that is not availed of due to the credit restrictions will be available on the basis proportionate basis in the succeeding months provided the details of some invoices have been uploaded by the suppliers. The restriction of 10% will be applied in such case also .
Summarized Provisions of the New Rule 86A (Inserted vide:-Notification No. 75/2019-Central Tax dt. 26.12.2019 ):
The rule 86A is another step taken by the government to restrict the input tax credit available to the tax payer . According to this rule The Commissioner or any other officer not below the rank of Assistant Commissioner authorized by him can restrict the ITC after having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible:-
if the input credit has been availed and the prescribed documents are not in possession of the tax payer or the if the due tax has not paid by the supplier or if the goods or services has actually not been received or if the supplier is not in existence from the place it had taken registration etc.
However Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.
With this a rule tax payer have to be very cautious about the selection of supplier. It has to make proper due diligence of the supplier before executing any transaction otherwise he will be in trouble. In my opinion in every case it would not be possible for the tax payer to carry out such due diligence due to various factors like cost , time etc.. The government should come with a provision so that innocent tax payer would not suffer at the cost of defaulting supplier otherwise whole idea of creating atmosphere of ease of doing business with the introduction of GST would be fail.
This article is an endeavor to share some learnings obtained. The views expressed are of the author and are intended solely for informational purpose only. Though due care is taken while preparing the document, possibility of errors cannot be ruled out. Expert guidance, where required and reference to the original act, notification, circular, rules etc is highly recommended.
(About the author – The author is a member of ICAI and can be reached at Email: nikhilkumarca@gmail.com , Mobile: 09936424523, , Twitter : @CA_NikhilKumar , FB: canikhillko Office: Flat No. 102, First Floor , Vasundhra Complex, Ring Road, Sector-16, Indira Nagar, Lucknow-226016 , U.P., India )
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