Effect of Notification 49/2019–Central Tax dated 9 October 2019 i.e. restriction on availlment of input tax credit (ITC)

Central Board of Indirect taxes and Customs restricts availment of input tax credit to recipient if details not furnished by supplier in Form GSTR-1

CBIC has issued Notification No. 49/2019–Central Tax dated 9 October 2019 amending the Central Goods and Services Tax (CGST) Rules, 2017.

Insertion to rule 36 of CGST Rules

“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 percent 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.”

Implication of amendment made vide Notification No. 49/2019–Central Tax

  • Amendment limits a company to avail 20% of eligible credit with respect to invoices appearing in purchase register of company which are not uploaded by supplier i.e. addition in purchase register, over and above the input tax credit reconciled with GSTR-2A.
  • In case value of addition in purchase register is greater than 20% of the reconciled eligible credit, the company shall be required to defer the credit. Such deferment of credit shall have an impact on working capital requirement.
  • As a result of the amendment, the company would be required to initiate follow up and communication on timely basis with the defaulting suppliers, in order to ensure their correct and timely uploading in GSTR-1.

Q&A :

Queries Answers
1. When will such amendment would be effective ? The amendment may be effective from 1st October 2019. Thus, effect of same has to be considered, while preparing GSTR-3B of October 2019. However, clarification on applicability of said notification is still awaited from CBIC.
2. Restriction of 20% credit shall be viewed at individual tax basis or total(IGST+CGST+STST) basis? 20% credit restriction shall be worked upon individual taxes rather than on collective basis.
3. Is there any change in the eligibility of credit and time limit of availing credit of invoices/debit notes? There shall be no change on eligibility of credit vide this amendment. Further, restriction of claiming credit till 30th September of upcoming year shall continue as earlier.
4. What shall be considered as eligible credit? This is purely basis on interpretation at discretion of the company. However, in order to avoid any litigation, eligible credit should be considered for cases matching in toto i.e. invoices in purchase register vis-à-vis GSTR-2A.
5. Whether matching is to be done basis 2A and PR of YTD or of the tax period month involved? • PR shall be considered for the tax period month.

• Since there is time lag due to processing of invoices vis-à-vis appearing in GSTR-2A, matching shall be done with YTD GSTR-2A (April 2019 till date)

6. Whether input under RCM will form part of PR for calculating eligible credit? No

Challenges/Action Steps / Readiness

  • Keeping track of deferred credit:
  • Additional credit not appearing in GSTR-2A is restrictive to 20% of reconciled eligible credit.
  • There may be instances wherein the companies would be required to defer the credit. In such a scenario, we shall be required to keep a track of such deferred credit in future.
  • Deferred credit will also include the mismatched credit not reconciled in 2A PR matching of previous month.
  • Continuous updation of 2A:
  • GSTR-2A gets updated as and when vendors file their returns.
  • The company must decide a cut-off date to work-on the 2A PR matching. Late filing of GSTR-1 by the vendors post such cut-off date, shall impact our working of 20% additional credit over and above reconciled credit.
  • Credit of invoices in hand:
  • There might be cases where the company is in possession of an invoice not been recorded in the PR and the same is appearing in GSTR-2A.
  • There is an ambiguity that such credit is to be considered as part of reconciled eligible credit while calculating 20% or not.
  • Vendor filling quarterly returns:
  • There might be cases where vendor is filling GSTR-1 on quarterly basis.
  • In such cases, the company will not be able to claim the input credit though company has made the payment to the vendor (if this exceeds the cap of 20%) as the same will be reflected in GSTR-2A after vendor files his return. The company has to keep track on these vendors as well.

Summary

A registered person cannot claim input tax credit, in respect of invoices for which the details have not been uploaded by the supplier in Form GSTR-1, in excess of 20% of the eligible credit available on invoices for which the details have been uploaded.

Restricting the input tax credit in the hands of recipient, due to non-compliant suppliers may have a significant impact on the working capital. Consequently, the regular matching of ITC with GSTR-2A and follow-up with such suppliers could become inevitable.

Since the Notification became effective from 9 October 2019, it may apply to input tax credit availment in the return to be filed by 10 November. However, clarity in this regard will help the taxpayer.

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