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The GST council has tweaked some rules related to input tax credit on 26th Dec 2022 by inserting rule 37A after rule 37 for input tax credit reversal. As per existing rule 37 if the recipient of goods and services fails to pay the supplier for the value of supply along with tax thereon within 180 days from the date of issue of invoice by the supplier, then the amount equal to input tax credit availed will get added to recipient’s output tax liability along with interest thereon. Every registered person is required to file a periodic return in prescribed form GSTR -3B. The said form contains details of inward and outward supplies, tax payable, tax paid, ITC availed , ITC utilized, payment of taxes and interest etc.

As per the newly inserted rule 37A if the supplier has not furnished GSTR- 3B return for the corresponding period of the supply on or before 30th day of September following the end of financial year in which the ITC was claimed, then the recipient will have to reverse the ITC so claimed on or before 30th November following the end of such financial year. Failing to reverse the ITC before the said timeframe may lead to interest being charged the the recipient on such ITC as per section 50. The rule further provides that when the supplier furnishes GSTR- 3B for the said supply subsequently, the recipient can re-avail the amount of credit for the tax period thereafter.

Till now filing of GSTR-1 by supplier would auto populate data in GSTR-2A for the recepient. Recipients are not allowed to claim more than 105% of the credit eligible in  GSTR-2A. To be safer most recipients would limit the ITC claims to 100% giving it a margin of safety to avoid any disallowances. That way trigger for claiming ITC for the recipients was somewhat systematic. With the new insertion, the recipients will have to check with the supplier if they have filed GSTR-3B else always run a risk of requiring to reverse the ITC. Given that there is no systematic way by which the recipient can get to know if the supplier has furnished his returns, council should look at creating that kind of infrastructure before passing such rules. Also if one thinks from the recipients’ point of view, they after paying for the value of goods and services including tax, why should they be penalized for delay on part of the supplier to pay taxes and file their GSTR- 3B. Till now matching the supply was a problem for the industry. As if that was not enough, the council has pushed more administrative issues onto the tax payers.

Someday we hope some prudence will prevail and the rule makers will make rules to make business easy. This one is certainly not a new year gift for the industry.

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