This Article discusses the issue of taxpayer with regard to implications of 20% Rule [Rule 36(4)] of CGST Rules 2017 with regard to supplies from Quarterly suppliers.

The CBIC released an important notification no. 49/2019 on 9 October 2019, inserting a new sub-rule (4) under rule 36 of the CGST Rules, 2017, stating that provisional credit can be hereafter claimed in the GSTR-3B only to the extent of 20% of eligible ITC reflected in the GSTR-2A. The new sub-rule 36(4) is reproduced 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 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.”.

The new rule impose condition to availment of ITC by a taxpayer in such a way that taxpayer can provisional ITC upto 20% of eligible ITC displaying in his GSTR-2A. The intent of rule is that taxpayer has to ensure that all his inward supplies should be duly reported in suppliers GSTR-1 and subsequently in his GSTR-2A. The capping of 20% has been kept on unreported invoices by the suppliers.

GST - Goods And Services Tax Green Blue Basic Shapes Text Horizontal

There is no problem in implementation of this rule in case of monthly suppliers who file their GSTR-1 on monthly basis except some more working on part of consultants before filing GSTR-3B. The consultants has to look GSTR-2A before putting the figure in Table 4 of GSTR-3B.

Various issues in this regard has been taken up like what is eligible ITC and on which type of ITC this rule will not apply. It is pertinent to note that this rule is not applicable on RCM supplies, Imports, Supplies from ISD etc. Moreover the eligible ITC is that ITC which is available for availment and not barred by the provisions of section 17(5) or Rule 42/43. The total eligible ITC i.e. available in GSTR-2A and 20% of such eligible ITC cannot be more than total eligible ITC for the particular tax period.

The great confusion is looming on taxpayers with regard to inward supplies from quarterly dealers. The quarterly dealers are suppose to file their GSTR-1 upto 31st of the month following the end of quarter. Therefore quarterly dealer will file their GSTR-1 after all three GSTR-3B could have been filed by the taxpayer. No invoice will reflect in GSTR-2A in case of supplies from quarterly dealers. What will happen in that case ? What will happen if all suppliers are quarterly dealers for a particular supplier or most of the suppliers are quarterly dealers ?

It is established principle that law cannot suppose from a person a task to be done which is impossible to be done by him.  Further law could not create undue hardship on taxpayer by prescribing rules in such a way which come across with each other.

A circular no. 123/42/2019 dated 11-11-2019 clarifying the issues relating to the implementation of this new rule was released on 11 November 2019. The relevant extract of the circular is reproduced as under.

3. FORM GSTR-2A being a dynamic document, what
would be the amount of input tax credit that is admissible to the taxpayers for a
particular tax period in respect of invoices / debit notes whose details have not been uploaded by the
The amount of input tax credit in respect of the invoices / debit notes whose details have not been uploaded by the suppliers shall not exceed 20% of the eligible input tax credit available to the recipient in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37 as on the due date of filing of the returns in FORM GSTR-1 of the suppliers for the said tax period. 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 CBIC has given the answer within the legal framework. The letters in bold are relevant and give a glimpse of real intention for framing the new rule 36(4). The CBIC has indicated in their answer that a taxpayer can take 20% credit for unreported invoices against the invoices reported in GSTR-2A on or before due date of GSTR-1 to be filed by the supplier. Meaning thereby is that a taxpayer can take credit of those invoices in his GSTR-3B for a particular month for which suppliers will file their GSTR-1 on or before their due date i.e. 31st January 2020 for quarter ending 31-12-2019. Therefore the taxpayer can take input credit of those invoices in their GSTR-3B from October to December 2019 for which their supplier will upload their invoices before 31-01-2019.

The taxpayer can do nothing but take input credit of all invoices in their GSTR-3B for the month of November and December 2019. They have to followup with their suppliers so that all the credit could reflect in their GSTR-2A before 31-01-2019. There could be different instances with regard to total ITC claimed by a taxpayer after 31-01-2019.

1. If more than 83.33% of eligible ITC would reflect in GSTR-2A on or before 31-01-2019 (31st of the month following end of the quarter). There is nothing to be done for that quarter. All ITC claimed in GSTR-3B would have immunity from 20% rule.

2. If invoices reported would remain lesser from 83.33% of eligible ITC on the last date of filing GSTR-1 by quarterly suppliers. The below mentioned procedure could be adopted.

i) A working will have to be done in tabular form with regard to total eligible ITC asper books of accounts

ii) Identify and calculate eligible ITC reflecting in GSTR-2A on due date of GSTR-1 (31-01-2019) with regard to a particular quarter

iii) Add 20% to eligible ITC reflecting in GSTR-2A on due date

iv) Subtract (ii)+(iii) from (i) above and find excess ITC claimed in GSTR-3B during a particular quarter.

v) Now reverse the ITC in upcoming GSTR-3B i.e. GSTR-3B of January 2019 with applicable Interest.

vi) You may claim input Credit of invoices so reversed in upcoming GSTR-3B in the month in which these are uploaded by the suppliers and available in GSTR-2A.

vii) Therefore a quarterly working is required to be done for pending invoices in GSTR-2A and these should be claimed when the same is available in GSTR-2A. Care must be taken that total claim for invoices of a particular quarter should not be more than total eligible ITC for that qauarter.

The above is my personal opinion and readers can form their own opinion by going through the relevant provisions and notifications.

The author can be reached at [email protected] for any clarification/suggestion etc.

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September 2021