Decoding Rule 37A of CGST Rules

Decoding Rule 37A of CGST Rules, 2017

Rule 37A has been introduced by Notification No. 26/2022-Central Tax dated 26-Dec-2022.

The Rule is reproduced below:

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

Where  input  tax  credit  has  been  availed  by  a  registered  person  in  the  return  in FORM GSTR-3B for a tax period in respect of such 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 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:

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.

In simple words, if your supplier does not furnish their GSTR 3B by 30^th September of the next financial year, then you need to reverse the ITC availed on the invoices raised by those suppliers.

Let’s understand this with the help of an example:

Your supplier raised an Invoice (INV0123) for outward supplies made to you during Jan-2023.They filed their GSTR 1 for the month of Jan 2023 on 11^th-Feb-2023. This gets reflected in your GSTR 2B. Accordingly, you claimed the Input tax credit in GSTR 3B for the month of Jan 2023.

You didn’t care about the filing status of their GSTR 3B for the particular month. Why would you care? Also, this is not practically possible. They could have filed their return on 20^th or may be after that. How long would you wait?

Now let’s recall Section 16 which talks about the Eligibility for taking ITC.

Section 16(2) – Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless-

(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply.

This clause further takes us to section 41.

Section 41 – Availment of input tax credit

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to avail the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited to his electronic credit ledger.

(2) The credit of input tax availed by a registered person under sub-section (1) in respect of such supplies of goods or services or both, the tax payable whereon has not been paid by the supplier, shall be reversed along with applicable interest, by the said person in such manner as may be prescribed:

Provided that where the said supplier makes payment of the tax payable in respect of the aforesaid supplies, the said registered person may re-avail the amount of credit reversed by him in such manner as may be prescribed.

Section 16(2)(C) and Section 41(2) both talks about ineligibility/reversal to claim ITC in case of non-payment of tax by you supplier.

Is there any way for you to know whether your supplier has paid taxes or not? No.

They could have filed their GSTR 3B for which filing status is available in public domain but how would you know whether they have discharged their full tax liability. There might be a case that they have filed GSTR 1 showing tax liability of let’s say Rs. 1,00,000 which was their actual liability, but filed GSTR 3B with just Rs. 10,000 tax liability. There is no restriction in doing so, as of now.

So, to tackle with this kind of scenario, government came up with 2 new rules. Rule 37A and Rule 88C.

We will not go into the details of Rule 88C. To give you a brief overview, this Rule says that if there is any difference between tax liability reported in GSTR 1 and GSTR 3B, then it will be recovered by the Government as per the rule.

So, now the difference in tax liability is being taken care of by the government itself. We need not indulge ourselves in checking our supplier’s compliance for the same.

But, to ensure that they have filed their GSTR 3B is still our responsibility. This is entrusted upon us by way of Rule 37A.

Now, let’s take our previous example forward.

You claimed ITC without verifying the GSTR 3B filing status of your supplier. This is perfectly as per law. Now, an additional obligation is imposed. You need to check the GSTR 3B filing status for all your suppliers for which you have claimed ITC till 30^th September of the next financial year (i.e., Sep-2023 in our example).

Now if this particular supplier hasn’t filed their GSTR 3B for Jan, 2023 till 30^th Sep, 2023 then you need to reverse the ITC for Invoice No. INV0123. This needs to be reversed till 30^th November, 2023. This has to be reversed in Table 4(B)(2) of GSTR 3B (as clarified by circular no. 170/02/2022). Also, Interest needs to be paid as per Section 50.

Further, this can also be reclaimed in future if your supplier subsequently furnishes their GSTR 3B for that particular month.

Also Refer

Rule 59 of CGST Rules, 2017

FAQ: Can the department still recover the tax from the buyer in case the supplier has filed GSTR 3B but has not paid the taxes fully:

Ans: Yes, it can do so. But first, recovery proceedings have to be initiated against the supplier and in case the government is unable to recover the said amount, then the department can raise a demand against the buyer.

How to comply with this rule?

• Download GSTR 2B for all 12 months of the previous financial year.
• Check for each supplier whether return has been filed or not. This can be done by extracting the return filing status from GSTR 2A.
• Reverse the credit claimed in respect of a particular supplier and for a particular month for which GSTR 3B is still not filed by that supplier.

Also, necessary undertakings can be taken from the supplier to recover any losses on account of non-compliance by the suppliers.