The nightmare begins the haunting!

Although the provisions of Rule 36(4), Central Goods and Services Tax Rules, 2017 have been made applicable from 09th October 2019, the gravity of complexity involved in application of the said Rule will have its floor test while filing the GSTR 3B return for the month of November 2019.

Varying understanding has been developed in respect of the said Rule in different strata of professionals. In fact, on e-platform one can find various articles which have shared contradictory views on the same issues. Thus in this article we will discuss on such of the issues which have sparked contradictory views. In light of the provisions of Rule 36(4), we will be discussing the possible answers to following questions:

A) Can an Assessee claim the credit on monthly basis, pertaining to invoices issued by vendors who file the GSTR1 on quarterly basis?

B) Can an Assessee consider the GSTR 2A file updated as on the date of filing of GSTR-3B return or the GSTR 2A of any specific date only, needs to be considered?

C) Can an Assessee ignore the impact of Credit notes reflected in GSTR 2A or to what extent the Credit note will have to be considered for applying the new Rule?

Let us discuss the above questions one by one !

A. Yes !

Although the Rule has given paramount importance to reflection of ITC figures in GSTR 2A, however at the same time the Rule has equally highlighted the phrase “due date of filing of GSTR 1”. To elaborate, at two instances in Circular No. 123/42/2019 dated 11th November 2019, it has been clarified that restriction imposed through Rule 36(4) are to be applied for details which remain unreported as on the due date of filing GSTR-1.

At serial No. 1 of the said Circular, it has been clarified that ‘the restriction of availment of ITC is imposed only in respect of those invoices / debit notes, details of which are required to be uploaded by the suppliers under sub-section (1) of section 37 and which have not been uploaded. Thus, restriction is imposed on unreported invoices which were required to be reported and not on invoices which were not at all required to be reported as on that date. Thus, distinction has to be made on those invoices ‘which are required to be reported but not reflected’ and invoices ‘which are not reflected as they are not required to be reported at all (as on the date)’. Thus the invoices of quarterly return filer won’t be covered by the Rule any time prior to the due date of the filing of GSTR1 and thus credit could be claimed on the same on monthly basis. However, the rule would apply immediately, after the ‘due date of GSTR 1 filing’ is crossed. Thus, the correction is to be made in the return which will be filed after such date and accordingly credit might be reversed if the conditions of rule are not met.

Similarly at Serial No. 3 it is clarified that ITC shall not exceed 20% of eligible credit pertaining to invoices as uploaded by suppliers as on the due date of filing GSTR 1. Thus unless the due date has not approached, question of restriction of 20% won’t arise.

Thus in our view, credit of invoices pertaining to Quarterly return filer can be claimed on monthly basis without applying the Rule but correction to be done by applying the provisions of Rule immediately in the return to be filed which falls after the due date of corresponding Quarterly-GSTR 1 due date.

B. GSTR 2A updated till the due date of supplier’s GSTR 1 ONLY has to be considered and not of any other day!

Theoretically the file is to be downloaded at midnight 00.01 on 12th of the month (or next day of due date) ONLY!

This is one of the provisions of the rule which has remained unnoticed by many. It is to be noted that although Assessees are allowed to claim the credit as reflected in GSTR 2A, but such credit is restricted to only those invoices which were reflected as on the due date of return filing of supplier and not later on.

The same has been clarified at Serial No. 2 as stated in A above. The credit shall not exceed 20% of credit as uploaded by the supplier as on the due date. Thus in case the vendor has filed the return belatedly say on 15th instead of 11th, then such credit even though reflected in the GSTR-2A as downloaded on say 19th i.e. as on date of filing 3B of assesse, still such credit is not admissible as per the Rule 36 (4). The rule has specifically mentioned the credit reflected in GSTR 2A as on the due date of filing of GSTR 1 by the supplier shall be allowed and not the one reflected as on the date of filing of 3B of the assesse.

Thus, following the strict interpretation of the language used in the Circular, the assesses are expected to download the GSTR 2A updated with the data as on the due date of GSTR -1 of suppliers. Thus while filing the GSTR-3B for any subsequent month, every assesse will be required to get back to GSTR-2A of each previous month.

C. Credit note impact can be ignored for the limited purpose of applying the new Rule!

Different school of thoughts revolve around this issue, few are mentioned below:

  • The rule of 20% has to be applied independently on the Credit Notes which are reflected in GSTR 2A.
  • The rule has to be applied on net basis of credit i.e. Credit reflected as per the invoice less credit reflected in respect of Credit notes.
  • Irrespective of the fact whether or not credit notes are being reflected or to what extent credit notes are reflected in GSTR 2A, Rule is not required to be applied at all on the Credit Note.

In Authors’ opinion, the Rule has not to be applied on Credit Notes at all. Such an understanding finds support from two instances viz. Circular and Notification issued in respect of Rule 36(4).

First, the Circular has cautiously restricted the application of Rule only on Invoices/Debit notes and has specifically not included in its ambit Credit notes. Whenever the Circular clarifies about eligible/restricted ITC, it appends provision only to invoices and Debit notes. The Circular is silent on to whether or not the Credit notes are included in the ambit of the said Rule. The silence on Credit Notes can be construed as non-applicability of the Rule, when the said Circular is read with the Notification 49/2019 9th October 2019.

This brings us to Second instance i.e. Notification. The notification that has inserted the new Rule specifically mentions the restriction on “Availment” of ITC through Invoices and Debit Notes and in the same line the Circular has been issued. One can strongly argue that the Rule has been inserted only to restrict the availment of ITC and question of reversal of ITC (Credit notes) is not at all the subject matter of the new Rule. The reflection or non-reflection of credit note has no effect on ‘availment’ of credit but on ‘reversal’ of credit.  Unless one assumes ‘reversal’ is included in the wide ambit of ‘availment’, Credit notes cannot be included in the ambit of Rule 36(4). It is pertinent to note that only new Rule does not apply on Credit note, however existing Rules and provisions of section will keep on applying on the credit Notes. To say otherwise the due reversal of credit on account of receipt of Credit Notes will be governed as it was prior to insertion of the Rule. To bring better clarity let us consider a simple example:

Total eligible credit as per the Books is say Rs 1000 crores, and ITC pertaining to Credit notes received, account for say Rs 200 crores. Thus net credit that can be claimed in GSTR 3B stands at Rs 800 crores. Now say in GSTR 2A eligible credit of Rs 400 crores is reflected along with entire Credit notes of Rs 200 crores. The rule restricts the availment of ITC to Rs 480 crores (400 + 20% of 400). The Reversal of ITC is to be done irrespective of the provision of Rules, therefore effect is to be given to entire Credit Notes i.e Rs 200 crores (whether reflected or not). Thus, in GSTR 3B net credit that is to be claimed is Rs 280 crores (480-200).

However, as a word of caution it is to be noted that different school of thoughts revolve around on this particular issue. Despite controversies revolving around the provision of the Rule, the paramount question is whether ITC can be restricted in such a manner in absence of such power in the Act. It appears that the Rule has been implemented without any spine.

In case of any query you may contact the authors at below mentioned email ID: &

Disclaimer:- This article and the information contained herein is intended to express personal opinion and views and is not intended in rendering any professional advice or services.

Author Bio

Qualification: CA in Practice
Company: M G D S & Co, Chartered Accountants
Location: Pune, Maharashtra, IN
Member Since: 03 Jan 2020 | Total Posts: 2

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December 2020