The CBIC has notified the Central Goods and Services Tax (Sixth Amendment) Rules, 2019 vide Notification No. 49/2019 – Central Tax dated 09-10-2019. The said Notification has also revamped the entire method of availing credit, by inserting a new Rule i.e. Rule 36(4) in the CGST Rules, 2017.

The rule seeks to restrict credit in relation to invoices & debit notes which are not appearing in GSTR – 2A. As per the said Rule, a registered person shall be eligible to avail ITC on unreported invoices and debit notes to the extent of twenty percent of the total eligible credit in respect of invoices and debit notes, the details of which have been uploaded by the Suppliers. The Rule provides 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.” 

Provision in law which ushers such amendment 

Section 43A which was introduced by the CGST (Amendment) Act, 2018, prescribed the procedure for furnishing the return and availing the ITC. Section 43A operationalises the new GST Return procedures. Section 43A(3) of the Act states that the procedure for furnishing the details of outward supplies by the supplier on the common portal, for the purposes of availing input tax credit by the recipient of supply shall be as prescribed.

Further, Section 43A(4) provides that the procedures for availing input tax credit in respect of outward supplies not furnished u/s 43A(3) shall be prescribed. Section 43A(4) also seeks to provide that the maximum amount of ITC that can be availed [in relation to supplies not furnished u/s 43A(3)] shall not exceed 20% of the ITC available, based on the outward supplies actually reported by the suppliers. Hence, firstly, the procedure for furnishing the details of outward supplies shall be prescribed, thereafter such restriction can be imposed. The pertinent point is that the aforesaid restriction is a part of the new return mechanism, which is scheduled from April, 2020 onwards, but has been given effect under the existing mechanism.

It is also relevant to note that the Rule 36(4) has been incorporated by invoking Section 164 instead of Section 43A. Section 164 which is an omnibus section, empowering the Government to make Rules for any matters under the GST Act. This creates a legal fallacy, since Rule 36(4) could have been prescribed only under Section 43A. Further, Section 43A has not been notified till date, hence this opens up the possibility to adjudge the constitutional vires of the said Rule.

Earlier, the government had clarified that furnishing of outward details in FORM GSTR-1 by the corresponding supplier(s) and the facility to view the same in FORM GSTR-2A by the recipient is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC on self-assessment basis in consonance with the provisions of section 16 of the Act. The government understands the practical issues involved in the existing return system, hence earlier, vide Circular No. 59/33/2018 dated 04-09-2018, the government had allowed refund to the dealers on furnishing hard copies of purchase invoices, even if they are not appearing in GSTR 2A. Hence, imposition of such restriction is in complete contradiction to aforesaid circular. Further imposition of such restriction creates a burden on the businesses, since it undermines the opportunity to the dealer who has effected genuine purchases.

Rule 36(4) has been made effective from 9th October, 2019. The question which persists is whether the restriction is applicable for filing return for the month of September, 2019 or October, 2019?

In absence of any further clarification, it is advisable to take effect of such restriction while filing return for the month of October, 2019.

With regard to credit pertaining to invoices (for FY 2018-19) which are not appearing in GSTR 2A, reliance is placed on the judgment of Delhi HC in the case of On Quest Merchandising India Pvt. Ltd Vs Government of Nct of Delhi & Ors. (W.P.(C) 6093/2017) has held that,

“the department is precluded from invoking Section 9 (2) (g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number. In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC. Where, however, the Department is able to come across material to show that the purchasing dealer and the selling dealer acted in collusion then the Department can proceed under Section 40A of the DVAT Act.”

The aforesaid judgment was later on affirmed by the Apex Court.

In view thereof, ITC pertaining to such invoices which are not appearing in GSTR 2A can be availed provided they are in consonance with the provisions of Section 16 of the CGST Act.

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