Budget 2021: A new condition introduced to avail Input Tax Credit

GST Charcha on Union Budget 2021: A new condition introduced to avail Input Tax Credit

The Hon’ble Finance Minister, in Budget 2021-22, hailed as a ‘development-oriented’ and ‘visionary’ budget amid the pandemic-induced disruptions, inter alia, announced multiple changes to the Goods and Services Tax (GST) framework. The changes have been proposed vide the Finance Bill, 2021, that amends the Central Goods and Services Tax Act, 2017 (CGST Act) and the Integrated Goods and Services Tax Act, 2017 (IGST Act), in order to curb input credit frauds, safeguard Government revenues and to provide statutory backing to debated Rules.

This GST Charcha deciphers into recent changes in GST Laws made vide Clause No. 100 of the Finance Bill, 2021 with respect to the addition of a new condition for availment of Input Tax Credit (“ITC”)

Relevant provisions:

Sub-clause (aa) in Section 16(2) of the CGST Act proposed to be inserted:

“(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37.”

Rule 36(4) of the Central Goods and Services Tax Rules, 2017 (“CGST Rules”) (as amended):

“(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 by the suppliers under sub-section (1) of section 37 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 by the suppliers under sub-section (1) of section 37 in FORM GSTR-1 or using the invoice furnishing facility.”

Discussion and Comments:

New condition to avail Input Tax Credit:

It has been proposed to insert the new clause ‘(aa)’, after clause (a), in Section 16(2) of the CGST Act, that provides an additional requirement to claim ITC based on GSTR-2A and newly introduced GSTR-2B, i.e., ITC on invoice or debit note can be availed only when details of such invoice/debit note have been furnished by the supplier in the statement of outward supplies (GSTR-1) and such details have been communicated to the recipient of such invoice or debit note.

This amendment has been proposed to avoid the unnecessary litigation and writ petitions challenging the validity of Rule 36(4) of the CGST Rules that prescribes the similar condition with 5% limit to avail ITC on invoices/debit notes not uploaded by the supplier in GSTR-1 (as amended vide Notification No. 94/2020- Central Tax dated December 22, 2020 w.e.f. January 01, 2021).

However, it is to be noted that pre-GST regime jurisprudence supports the view that as long as the purchasing dealer has taken all the steps required for being eligible for ITC, he could not be expected to keep track of whether the selling dealer has in fact deposited the tax collected with the government or has lawfully adjusted it against his output tax liability- Arise India Limited and Ors. v. Commissioner of Trade &Taxes, Delhi and Ors [W.P.(C) 6093/2017 & connected matters dated 26.10.2017] – SLP filed by the revenue has been dismissed with no discussions on merit by the Hon’ble SC in [Special Leave to Appeal (C) No(s). 36750/2017 dated 10.01.2018]. Thus, this provision is still prone to litigation.

Note: Amendments carried out in the Finance Bill, 2021 will come into effect from the date when the same will be notified and when the said clause also gets concurrently notified with the corresponding amendments passed by the respective States and Union territories in respective SGST/ UTGST Act.

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