CGST Rule 37A: Reversal & re-availing of Input Tax Credit

Introduction: Rule 37A of the Central Goods and Services Tax Rules, 2017, plays a pivotal role in the taxation landscape, specifically addressing the reversal of input tax credit in cases where the supplier fails to pay taxes promptly. This article aims to provide a comprehensive understanding of Rule 37A, its background, implications, and the recent GSTN update.

Rule 37A. Reversal of input tax credit in the case of non-payment of tax by the supplier and re-availing thereof:

Before we understand Rule 37A, here is the brief background of availing of input tax credit upon reflecting in GSTR-2B.

In the initial step, the supplier will file his outward supplies in Form-GSTR-1 and the said invoices will be reflected in Form GSTR-2B/2A of the respective recipient of such supplies.

The recipient shall proceed to avail of the credit on the invoices reflected in GSTR-2A/2B subject to the conditions of availing input tax credit in their Form GSTR-3B.

This rule has been introduced in the best interest of the revenue. The rule provides that such input tax credit availed will be subject to reversal by the recipient if the tax on such invoices is not paid in Form GSTR-3B by the supplier within the specified time.

Rule 37A has been Inserted vide Notification No. 26/2022 – CT dated 26.12.2022, which states that “Where  input  tax  credit  has  been  availed  by  a  registered  person  in respect of invoice or debit note, the details of which have been  furnished  by  the  supplier  in  the  statement  of  outward  supplies  in FORM GSTR-1 or  using  the invoice furnishing facility, but the return in FORM GSTR-3B for the tax period corresponding to the said  statement of outward supplies has not been furnished by such  supplier  till  the  30th day  of September following the end of the financial year in which the input tax credit in respect of such invoice or debit note has been availed, the said amount of input tax credit shall be reversed by the said registered person while furnishing  a return in FORM GSTR-3B on or before the 30th day of November following the end of such financial year.”

In simple words, invoices have been declared by the supplier in his Form GSTR-1, also input tax credit has been availed by the recipient of such invoices but subsequently, the supplier fails to file the Form GSTR-3B in respect of such invoices till the 30th day of September following the end of financial year in respect of such invoices.

Consequently, the recipient is bound to reverse such input tax credit availed in respect of invoices, the tax on such supplies by the supplier is not paid in Form GSTR-3B.

The time limit for such reversal of input tax credit by the recipient is on or before the 30^th day of November following the end of such financial year

Provided that where the said amount of input tax credit is not reversed by the registered person in a return in FORM GSTR-3B on or before the 30th day of November following the end of such financial year during which  such  input  tax  credit  has  been  availed, such amount shall be  payable by the said person along with interest thereon under section 50.

Provided further that where the said supplier subsequently furnishes the return in FORM GSTR-3B for the said tax period, the said registered person may re-avail the amount of such credit in the return in FORM GSTR-3B for a tax period thereafter.

Also, the GSTN update dated 14-11-2023 informs that “To facilitate the taxpayers, such amount of ITC required to be reversed on account of Rule 37A of CGST Rules for the financial year 2022-23 has been computed from the system and has been communicated to the concerned recipient. The email communication to this effect has been sent to the registered email ID of the taxpayer.”

Conclusion:

This change heightened the recipient’s accountability in claiming input tax credit, causing potential limitations or delays in accessing the credit when the supplier fails to pay taxes promptly. Nonetheless, this approach aims to fortify revenue streams and enhance transparency in the system.

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