Rule 36(4) – An additional condition to avail ITC under GST

[Ref: Notification No. 94/2020-Central Tax dated 22nd December, 2020]

We all are aware that recently, in exercise of the powers conferred by Section 164 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017), the Central Government, on the recommendations of the Council, has issued a Notification No. 94/2020-Central Tax dated 22nd December, 2020 to amend the Central Goods and Services Tax Rules, 2017 (“CGST Rules, 2017”) majorly with regard to the following-

1. GST registration can be cancelled or suspended under CGST Rules, 2017 21A at the discretion of the tax officer in certain cases;

2. Changes in Rule 36(4) of CGST Rules, 2017 from 1st January, 2021- recipients can claim provisional Input Tax Credit (“ITC”) in GSTR-3B to the extent of 5% instead of earlier 10% of the total ITC available in GSTR-2B for the month;

3. Certain taxpayers cannot make payment from their electronic credit ledger in excess of 99% of the total tax liability for the tax period.

4. Changes notified in e-way bills Rules regarding validity and blocking due to non-filing of GSTR-3B.

Now, we would like to discuss and deal herein only with regard to change in Rule 36(4) of CGST Act, Rules from 1st January, 2021. It is stated that a new provision as ‘Section 43A’ ‘regarding procedure for furnishing return and availing input tax credit’ was inserted vide CGST (Amendment) Act, 2018 (the ‘Amendment Act, 2018’). It is notable that Amendment Act, 2018 was notified w.e.f. 01.02.2019 by Notification No. 02/2019 – Central Tax dated 29th February 2019 but some sections [i.e. clause (b) of section 8, section 17, section 18, clause (a) of section 20, sub-clause (i) of clause (b) and sub-clause (i) of clause (c) of section 28] of the said amendment is to be notified yet. Section 18 of Amendment Act, 2018 talks about insertion of new Section 43A in CGST Act, 2017.

More important thing for which we would like to draw your kind attention herein is regarding sub-section (4) of Section 43A of the CGST Act,2017 that is-

*“43A(4) The procedure for availing input tax credit in respect of outward supplies not furnished under sub-section (3) shall be such as may be prescribed and such procedure may include the maximum amount of the input tax credit which can be so availed, not exceeding twenty per cent. of the input tax credit available, on the basis of details furnished by the suppliers under the said sub-section.”

*Again, please note that the said provision was not yet been notified.

Later on, the Central Board of Indirect Taxes (“CBIC”) having power in Section 164 of the CGST Act, 2017, released a crucial Notification No. 49/2019 (Central Tax) dated 09th October, 2019 by which a new sub-rule (4) under Rule 36 of the CGST Rules, 2017, was inserted.

The Rule 36(4) in words of the law is-

“(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.”.

Rule 36 provides ‘documentary requirements and conditions for claiming input tax credit’ under Chapter V INPUT TAX CREDIT. Rule 36(4) restricts the credit relating to the invoices not uploaded by the suppliers in their form GSTR-1 to the extent of 20% (10% w.e.f.01.01.2020 vide Notification No. 75/2019 Central Tax dated 26th December, 2019 and 5% w.e.f. 01.01.2021 vide Notification No. 94/2020-Central Tax dated 22nd December, 2020). It provides that ITC can be here after claimed in the GSTR-3B only to the extent of 120% of eligible ITC reflected in GSTR-2A in aggregate.

Rule 36(4) is concerned with regard to restriction on the availment of ITC in cases where GSTR-1 has not been uploaded by the suppliers under sub-section (1) of section 37. It is important to note that this newly inserted rule is a substantive condition to be fulfilled for the availment of ITC in addition to conditions prescribed under Section 16 of CGST Act, 2017.

For instance: –

We know that prior to the introduction of the above notification entire eligible ITC of Rs 150 can be availed by the taxpayer in GSTR3B return. However, with effect from 9th October 2019 out of eligible ITC not appearing in GSTR2A of Rs 50, a sum of Rs 20 can only be claimed in GSTR3B of the current month. Remaining ITC of Rs 30 can be claimed in the subsequent months when the corresponding invoices are uploaded by the suppliers in GSTR1.

#Only for your reference please note that ITC once availed as per Section 16 (Rules thereto) is credited to Electronic Credit ledger of the registered person and can be utilized for payment towards output tax as provided in Section 49 of the CGST Act, 2017.

Rule 36(4) by Notification No. 94/2020-Central Tax dated 22nd December, 2020.

After the amendment in Rule 36(4) by Notification No. 94/2020-Central Tax dated 22nd December, 2020, it may be read as under-

“(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 furnished in Form GSTR-1 or using the invoice furnishing facility, shall not exceed 5 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been furnished in Form GSTR-1 or using the invoice furnishing facility.”.

Summarised Position before and after introduction of Rule 36(4) w.e.f. 09.10.2019 and with latest amendment vide Notification No. 94/2020-Central Tax dated 22nd December, 2020.

ITC Mechanism before introduction of Rule 36(4) (before 09.10.2019):-

ITC Mechanism after introduction of Rule 36(4) (i.e. w.e.f. 09.10.2019 to 31.12.2019):-

ITC Mechanism after introduction of Rule 36(4) (i.e. w.e.f. 01.01.2020 to 31.12.2020):-

ITC Mechanism after introduction of Rule 36(4) (i.e. w.e.f. 01.01.2021):-

Issues and Clarifications through Circular No.123/42/2019 GST dated 11th November, 2019.

Further, it also is necessary and important to talk about Circular No.123/42/2019 GST dated 11th November, 2019 issued by the Central Government, in exercise of its powers conferred under section 168(1) of the CGST Act, 2017 which clarify various issues to ensure uniformity in the implementation of the provisions of the law across the field formations. The important clarifications are as per the above circular are as under-

Self-assessment basis: This being a new provision, the restriction is not imposed through the common portal and it is the responsibility of the taxpayer that credit is a vailed in terms of the said rule and therefore, the availment of restricted credit in terms of sub-rule (4) of rule 36 of CGST Rules shall be done on self-assessment basis by the taxpayers.

Other various issues relating to implementation of the said sub-rule have been examined and the clarification on each of these points is as under: –

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.