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The CBIC has released Notification No: 18/2022 dated: 28.09.2022wherein the Provisions of Finance Act, 2022 brought to effective from 1st Oct 2022.

Sec 99 to Sec 117 talks about CGST Act and Sec 118 to 120 for IGST Act.

Understanding Sec 16(2)(ba) of GST Act, 2017

Sec 99 provides insertion of new Sub Section 16(2)(ba) which reads as follows:

“(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;”

Looks like Sec 16(2)(ba) is so simple to read until we go and read Sec 38 of CGST Act, which is also modified in Finance Act 2022 as below:

“38. (1) The details of outward supplies furnished by the registered persons under sub-section (1) of section 37 and of such other supplies as may be prescribed, and an auto generated statement containing the details of input tax credit shall be made available electronically to the recipients of such supplies in such form and manner, within such time, and subject to such conditions and restrictions as may be prescribed.

(2) The auto-generated statement under sub-section (1) shall consist of–– 

(a) details of inward supplies in respect of which credit of input tax may be available to the recipient; and 

(b) details of supplies in respect of which such credit cannot be availed, whether wholly or partly, by the recipient, on account of the details of the said supplies being furnished under sub-section (1) of section 37,–– 

(i) by any registered person within such period of taking registration as may be prescribed; or 

(ii) by any registered person, who has defaulted in payment of tax and where such default has continued for such period as may be prescribed; or 

(iii) by any registered person, the output tax payable by whom in accordance with the statement of outward supplies furnished by him under the said subsection during such period, as may be prescribed, exceeds the output tax paid by him during the said period by such limit as may be prescribed; or 

(iv) by any registered person who, during such period as may be prescribed, has availed credit of input tax of an amount that exceeds the credit that can be availed by him in accordance with clause (a), by such limit as may be prescribed; or

(v) by any registered person, who has defaulted in discharging his tax liability in accordance with the provisions of sub-section (12) of section 49 subject to such conditions and restrictions as may be prescribed; or

(vi) by such other class of persons as may be prescribed.”

Thus Sec 38 restricts more on availing Input Tax Credit (ITC) by the recipient w.e.f. 01.10.2022.

One of the condition in Sec 38, that is 38(2)(b)(v) is restricting ITC if the supplier has defaulted in discharging his tax liability in accordance with the provisions of subsection (12) of section 49.

This Sec 49(12) is also a new section inserted in the Finance Act, 2022. So this is what is Sec 49(12) says.

“(12) Notwithstanding anything contained in this Act, the Government may, on the recommendations of the Council, subject to such conditions and restrictions, specify such maximum proportion of output tax liability under this Act or under the Integrated Goods and Services Tax Act, 2017 which may be discharged through the electronic credit ledger by a registered person or a class of registered persons, as may be prescribed.”

Now let’s see what is the maximum proportion of output tax liability which may be discharged through the electronic credit ledger. This Sec 49(12) is brought in as the legal back up for Rule 86B which reads as under:

86B. Restrictions on use of amount available in electronic credit ledger.-Notwithstanding anything contained in these rules, the registered person shall not use the amount available in electronic credit ledger to discharge his liability towards output tax in excess of ninety-nine per cent. of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees:

Provided that the said restriction shall not apply where –

(a) the said person or the proprietor or karta or the managing director or any of its two partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees, as the case may be, have paid more than one lakh rupees as income tax under the Income-tax Act, 1961(43 of 1961) in each of the last two financial years for which the time limit to file return of income under subsection (1) of section 139 of the said Act has expired; or

(b) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (i) of first proviso of sub-section (3) of section 54; or

(c) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (ii) of first proviso of sub-section (3) of section 54; or

(d) the registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, upto the said month in the current financial year; or

(e) the registered person is –

(i) Government Department; or

(ii) a Public Sector Undertaking; or

(iii)a local authority; or

(iv) a statutory body: 

Provided further that the Commissioner or an officer authorised by him in this behalf may remove the said restriction after such verifications and such safeguards as he may deem fit.”.

According to Proviso (d) of Rule 86B, the Supplier has to discharge his outward liability through credit ledger only upto the maximum limit of 99% and balance 1% has to be paid through cash ledger even if he has adequate Input Tax Credit available in his credit ledger. There are also some exemptions given to this rules.

Points for Recipient for availing ITC from 01.10.2022:

With all the above understandings, we can conclude that a recipient may not able to avail Input Tax Credit if his supplier defaults Sec 49(12) which includes 3rd Proviso of Rule 86B. For availing Input Tax Credit he has to ensure certain supplier compliances and details of his supplier’s nature of business.

What are those details needed to decide whether the Input Tax can be claimed or not??

1. Whether his Supplier’s turnover is above 50 Lakhs during that MONTH? (Not Annual Turnover)

2. If his Supplier’s turnover is more than 50 Lakhs whether the Proprietor / Partner / Director of the Supplier has paid Income Tax above 1 Lakh in the last two financial years?

3. If the supplier has received any refund more than 1 Lakhs during the preceding financial year against Exports under LUT.

4. If the answer for 2 & 3 above are NO and answer for 1 is YES, whether the supplier has paid his outward liability in Cash Ledger for atleast 1% for the cumulatively upto the particular month of the financial year?

If above conditions are met and verified, then the Recipient is eligible for availing Input Credit of the Invoice issued by such supplier.

Now think about a Dealer having 10 Suppliers, Trader having 50 Suppliers. A Manufacturer having 500 Suppliers. The compliance activities gets more that too now month on month depending upon the monthly turnover of the suppliers.

Considering 14th day of Every month is the data population in GSTR2B report and 20th day is the due date for filing GSTR3B every month, the recipients are having very lesser time for complying multiple compliances of GST Act.

If we add Sec 16(2)(c) and it’s compliance into consideration, a Recipient cannot avail any Input Tax Credit to his account, even if such Input Tax Credit is eligible for him and he is having all the relevant documents provided by the Supplier.

Thus Input Tax Credit Availment goes beyond the purview of the Recipient and fully depended on the compliance conditions of the Supplier for which Recipient has to work for checking multiple compliances of every supplier, to avoid any litigations from the department in future.

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One Comment

  1. brahmdeo9 says:

    आपके द्वारा बहुत अच्छा लेख लिखा गया है पर 16(2) ba लाने के पीछे सरकार की सोच तो ठीक है पर उसको लागु करने की जो भी प्रक्रिया है उसमे झोल है इससे मुक्दमे बाजी ही बढेगी, और एक ईमानदार करदाता परेशान होगा अब ये कराधान दिन ब दिन किलिष्ट होता जा रहा है न्यायिक प्राधिकरणों से ही उम्मीद शेष है

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