Analysis of CBIC Circular no 123/42/2019-GST issued to clarify the restriction in availment of input tax credit in terms of sub-rule (4) of rule 36 of CGST Rules, 2017

CBIC has issued Circular No. 123/42/2019-GST dated 11th November 2019 in order to clarify the restriction in availment of input tax credit in terms of sub-rule (4) of rule 36 of CGST Rules, 2017.

1. Synopsis of the Clarification issued

  • The conditions and eligibility for the ITC that may be availed by the recipient shall continue to be governed as per the provisions of Chapter V of the CGST Act and the rules made thereunder.
  • The ITC restriction is not imposed through the common portal and the availment of restricted credit in terms of rule 36(4) shall be done on self-assessment basis by the tax payers.
  • The restriction on availment of input is imposed only upon such invoices / debit notes which are required to be uploaded by the suppliers in their GSTR-1. Therefore, full ITC in respect of IGST paid on imports, documents issued under RCM, credit received from ISD may be obtained without any restrictions.
  • The restriction shall be applicable only on invoices / debit notes on which credit is availed after 9th October, 2019.
  • The restriction imposed shall not be calculated supplier wise but on total eligible credit from all suppliers against all supplies.
  • The calculation would be based only on such invoices / debit notes which are eligible for ITC. For instance if any input is not eligible or is ineligible u/s 17(5) of the CGST Act, 2017, then such ineligible input shall not be considered for calculating 20% of eligible credit.
  • The input tax credit eligibility shall be calculated based on the entries in GSTR-2A as on the due date of filing of GSTR-1 by the supplier. This implies input tax credit from only those suppliers who have filed their GSTR-1 within 11th of the succeeding month (for monthly taxpayers) shall be taken into consideration for calculation of 20% restriction.
  • The Balance ITC may be claimed by the taxpayer in any of the succeeding months provided details of requisite invoices are uploaded by the suppliers. He can claim proportionate ITC as and when details of some invoices are uploaded by the suppliers provided that credit on invoices, the details of which are not uploaded (under sub-section (1) of section 37) remains under 20 per cent of the eligible input tax credit, the details of which are uploaded by the suppliers

2. How Registered person should Calculate ITC post Rule 36(4) and the Clarification issued;

Step Description
1 Extract the Purchase Register for the month from Tally/ ERP as the case may be
2 Bifurcate ITC taken on account of Imports, RCM and ISD.- Denoted as part A
3 The balance ITC to be taken in a separate table
4 Download GSTR-2A of the Month and compare the data of tables B2B,B2BA,CDNR,CDNRA with table as per Step 3
5 All the Matched entries as per the above step to be separated- Denoted as Part B
6 Categorize  all the Unmatched entries in following categories

1. ITC which is reflected in books but not in 2A

2. ITC which are GSTR-2A but not in Books

3. ITC  which are Ineligible as per Section 17(5)

4. ITC which does not pertain to the recipient entity

7 Calculate Eligible Credit as per GSTR-2A: It will Include the Following

=[All Matched Entries as Denoted by Part B]*120%

8 Total Credit to be Claimed in GSTR-3B =

ITC on Actual Basis of Imports, RCM, ISD as per Part A+ Eligible Credit as Calculated in Part B

3. What will be treatment of Unmatched entries of GSTR-2A ?

It will be imperative for each Registered person to maintain the list of such unmatched entries as Specified in Step 6 of the above Table on month on Month basis. The treatment will be in the following manner;

  • ITC which is reflected in books but not in 2A: It needs to be compared with GSTR-2A of the Month (Since it is dynamic, it will be continually updated).  The Registered person has already taken 20% of Eligible Credit on Provisional Basis. The Balance will be taken as and when such invoices are reflected in GSTR-2A of the month or succeeding months.
  • ITC which is in GSTR-2A but not in Books: It will be compared with Purchase register of succeeding months and once matched, it will be included while Calculating the Eligible credit of the month in which it is Matched. It may include goods in transit cases.
  • ITC which are Ineligible as per Section 17(5): It will be striked off as ITC cannot be claimed.
  • ITC which does not pertain to the recipient entity- As this does not pertains to the business of recipient, it is a part of Ineligible credit.

4. CASE STUDY

A Limited has Following Credit as on Oct 30, 2019 in Purchase Register

Imports INR 20 Cr
RCM INR 30 Lacs
ISD INR 1 Cr
Other Credit INR 15 Cr
Total INR 36.30 Cr

A Limited downloaded GSTR-2A on 12th Nov, 2019 and has Credit of INR 12 Cr. It was matched with Purchase Register and following was observed;

RCM from Registered dealers INR 25 lacs
Matched Credit with Purchase Register INR 11 Cr
Credit in Books and not in GSTR2A INR 4 Cr
Credit in GSTR-2A and not in Books INR 50 lacs
Ineligible Credit as per 17(5) INR 15 lacs
Credit does not pertaining to A Limited INR 10 lacs

Total Eligible Credit as per GSTR-2A=

Matched Credit with purchase register INR 11 Cr
Add 20% Provisional Credit INR 2.2  Cr
Total INR 13.2 cr

Total Credit which can be availed in GSTR-3B of October 2019

Imports INR 20 Cr
RCM INR 30 Lacs
ISD INR 1 Cr
Other Credit INR 15 Cr or INR 13.2 Cr whichever is less = INR 13.2 Cr
Total ITC INR 34.50 cr

In November, the above Exercise will be repeated along with following additional Steps

Statement of Unmatched entries Amount as Actions to be taken in Succeeding Months
Credit in Books and not in GSTR2A INR 4 Cr This to be checked in GSTR-2A of November, 2019 and also of October 2019. The Matched entries will be proportionately added while Calculating ITC for November 2019.

For instance, we get Matched invoices having credit of INR 3 Cr. The Balance ITC which can be availed in GSTR-3B of November 2019 will be

Total Credit for Oct 2019 INR 15 Cr
Total Credit required in GSTR-2A of October to claim complete ITC INR 15 Cr/ 1.20 = INR 12.5 Cr
Total Matched Credit at the time of October GSTR-3B INR 11 Cr
Total Eligible Credit claimed in GSTR-3B of Oct 2019 INR 11 Cr *1.20%= INR 13.20 Cr
Additional Matched entries available  based on updated October GSTR-2A at the time of preparation of GSTR-3B for November,2019  INR  3 Cr
Differential Credit required to claim complete credit of October 2019 was INR 1.5 Cr(INR 12.5 Cr –INR 11Cr). Since additional Matched entries are more than 1.5 Cr, balance credit is fully claimed  

= INR 15 Cr- INR 13.20 Cr= INR 1.80 Cr

Credit in GSTR-2A and not in Books INR 50 lacs This is to be checked in Purchase register of November, 2019 and to the extent of Matched entries, it will be added in Eligible Credit Calculation  for November 2019

5. Open Issues to be faced by the Registered Person

GSTR- 2A restriction will not be easy task and some of the major issues which will be faced by registered person are;

A. Separate Monthly Reconciliation to be updated: GSTR-2A can be downloaded as Monthly report. Thus for every month, a separate reconciliation will be undertaken and Statement of Unmatched entries need to be kept. Further, this statement also need to be continually updated each month so as to update all the matched entries. This will be reconciliation nightmare for the companies.

B. Delayed Upload of GSTR-1 to mean Credit availment in next month: As per the Circular, GSTR-2A need to be download as on the due date of filing of GSTR-1. Thus, in case the vendor files GSTR-1 after the due date, the same will not be reflected in GSTR-2A as on the due date of filing of GSTR-1 and hence only 20% of such credit may be availed by recipient. The only solution is that Invoices may be continually uploaded on portal by suppliers even if they file GSTR-1 after the due date.

C. No Date on GSTR-2A with respect to date of Download: As per the Circular, Eligible credit for the month will be calculated as per GSTR-2A as on due date of filing of GSTR-1 which in case of Monthly filers is 11th of the Succeeding month, thus for calculation of Eligible Credit for the Month of October 2019, Credit of GSTR-2A as on 11th November 2019 will be taken. It is not clear whether GSTR-2A should be downloaded on 11th November, 2019 or on 12th November, 2019. In case we download on 11th November, 2019, there might be some dealers who upload details at 9.00 a.m. but there will also be dealers who upload details at 9.00 p.m. Since GSTR-2A is a dynamic document, there cannot be one single correct time for download of GSTR-2A. However it is recommended that GSTR-2A must be downloaded on 12th November, 2019 so that effect of all GSTR-1 uploaded till the due date will be reflected in it. Furthermore, GSTR-2A does not have any date of download. Thus it will be difficult to provide validate that when GSTR-2A is downloaded and how much credit can be taken for calculation of Eligible Credit. Further, there will also be a system issues, if GSTR-2A is downloaded on the same day by all assessees through-out the country.

D. Delayed Credit Availment where vendors are filing GSTR-1 on Quarterly basis: There will be delayed credit availment where vendors are filing GSTR-1 on Quarterly basis. The due date for filing of GSTR-1 in case of those who have opted for quarterly option is 30th /31st of the month following the end of quarter. Thus for the Quarter Oct-Dec 2019, GSTR-1 will be uploaded on 31st January, 2020 and the same will be reflected in GSTR-2A as on 11th February, 2020. Thus ITC on such purchases can be completely availed for the month of January, 2020. This will increase the working capital of the entity.

E. Issue of Credit Reconciliation at the time of Annual Return : Reference this  Circular, Government is allowing 20% Provisional credit thus for Claiming credit of INR 15 Cr, credit of only INR 12.5 Cr need to reflected in GSTR-2A. However during filing of GSTR-9, Credit of GSTR-3B is compared with credit as per GSTR-2A and then it will show excess credit claimed as per GSTR-2A.

6. Recommendation

It will take time for the Industry and the tax experts to fully comprehend the impact of Rule 36(4) of CGST Rules. However, it is recommended that all the registered person may encourage all its vendors to keep on uploading the invoice details on the GST portal on a regular basis. This exercise may not be limited to 2-3 days before filing of GSTR-1. If the Invoices are uploaded on the portal, it will be reflected on GSTR-2A of the recipient irrespective the GSTR-1 is filed or not. In this manner, the same will be included in calculation of Eligible credit whether GSTR-1 is filed on Monthly or Quarterly basis or even filed after the due date.

In case of any Clarification, do contact the Undersigned.

Jointly By:

CA. Chitresh Gupta
FCA, LL.B , B. Com(H)
Co-Author of book “GST –Law, Analysis & Procedures”
Faculty on Goods & Services Tax by ICAI
Email : Chitresh.gupta@gstexperts.net
CA. Shilpi Gupta
FCA, M.Com, B.Com(H) -SRCC
Co-Author of book “GST –Law, Analysis & Procedures”
Faculty on Goods & Services Tax by ICAI
Email : shilpi.gupta@gstexperts.net

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One Comment

  1. SIDDHARTH DUGE says:

    You are saying check GSTR-2A as on 11th of the month to calculate 120% amount. What if I check it on 15th of the month ? How will I get information about additions in GSTR-2A between 11th and 15th.

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