Below are the clarifications sorted vide Cir No 123/42/2019 dated 11 Nov 2019:
1. Restriction of 20% availment of ITC is on consolidated basis (not supplier wise) w.e.f 9th Oct 2019. Further, the said restriction for availing ITC is in respect of ONLY those invoices / Dr notes, details of which are required to be uploaded in GSTR 1, however have not been uploaded by the suppliers.
Thus, NO restriction on availment of ITC for cases of like IGST on Imports, credit on account of RCM and ISD.
2. Formula for calculation of Eligible ITC to be availed for any Tax period:
Total Eligible ITC as reported in GSTR 1 by the Suppliers as on the due date of filing of GSTR1+
20% of the Total eligible ITC reported in GSTR 1 by suppliers as on the due date of filing of GSTR1.
Note – The resultant figure shall be restricted to the Total amount of Eligible ITC.
Below is the table of examples:
i. Pending ITC can be availed as and when the missing Invoices are reported by the Suppliers on proportionate basis subject i.e. the credit can be claimed subsequently.
ii. Full ITC can be availed if the below criteria is met for any tax period:
Thus, the moment the ITC as reported by suppliers in GSTR 1 reflecting in GSTR 2A reaches the amount equal to (Total Eligible ITC / 1.2) the Recipient may avail full credit i.e. in the above examples the moment it reaches 8.3 lacs , the recipient may avail full credit.
Critical Analysis / Challenges:
GST was introduced with one of its primary objective as seamless flow of Input Tax credits through automated online matching of Credits on GST portal. However, the restrictions imposed vide Notification No 49/2019 dated 9 Oct 2019 and subsequent clarification vide Circular No. 123/2019 dated 11 Nov 2019 seems to be an attempt to restrict the Input Tax Credit in the hands of Recipients, increase GST Cash Revenue and increase the GST compliance’s for the Recipients.
1. At the outset, the very first question to be sorted is whether ITC should be restricted to the Recipient for the Suppliers non-compliance and non-filing of GSTR-1. It’s a common practice (though improving) that many supplier assesses are not filing filling or filing a delayed GSTR 1 at their convenience. This shall result in undue deferment of Input Tax Credit for many Recipients. Clearly its going to impact the working capital of the Recipients.
2. We must not forget the dynamic nature of GSTR 1 which impacts directly our GSTR2A and is prone to changes and amendments at the liberty of the Supplier. Though the notification provides that the GSTR 1 as on the due date of fling of return should be used, we cannot miss on the issues like clerical errors which may be done while uploading GSTR1 even though these will be clear cases which have been reported with some errors. How do we handle the above challenges while calculating 20% restriction formula of ITC?
3. Further, it also means the Recipients to ensure the correctness of the ITC claimed for any tax period as per the above formulas over and above the current offline reconciliations, follows ups with suppliers for filing their compliances w.r.t GSTR 1 and correct reporting of Receipent’s Invoices. The Recipient’s also needs to ensure proper records and backups for showing the above calculations to determine the Eligible ITC vis a vis GSTR1 filed by Suppliers and as reflected in GSTR 2A for any tax period. Clearly, it’s a further increase in the compliance burden for Recipients.
Disclaimer: The views expressed in the above article should not be relied upon as a Legal Advice.