Explained: ITC restricted due to PoS rules

As you are aware that the GSTR3B form was recently modified with reclassification of tables in ITC Section.

Now Table 4(D)(2) is for Ineligible ITC under section 16(4) & ITC restricted due to PoS rules

Here we need to declare the values of ineligible under two categories:

a. ITC not availed because of time limit exhausted for availing ITC (Invoice related to previous year but not claimed till 30^th day of November of the subsequent year)

b. ITC not available because of PoS (Place of Supply) rule restrict the same.

So what is this ITC restriction due to PoS rules?? Let us discuss in detail

Place of Supply comes under IGST Act, 2017 which determines the Place of Supply for Goods and / or services and determination of the tax based on the Place of Supply. Section 10, 11, 12 & 13 speaks about various situations and scenarios of supplies and derived the place of supply for each type of situations.

For an example if you are having business in Chennai (Tamil Nadu state) and for a business purpose you are travelling to Mumbai (Maharashtra state) and staying there for a week in a Hotel, the Hotel will issue a bill addressing to your Chennai address but charging CGST/SGST instead of IGST. This is because of the Place of Supply of Services in India as determined under Section 12 of IGST Act.

Since the service of Accommodation happening in that premises and ends in the same premises which is located in Maharashtra, the GST chargeable will be CGST/SGST even though the recipient address is other state.

In this case, the Hotel will file their GSTR1 and it also reflects in your GSTR2B but you cannot avail the ITC for the same because in GSTR2B report it is specifically mentioned as “ineligible” with a reason “PoS different from Recipient State”. This means, even your expenses is for business purpose, CGST Act doesn’t block ITC of Hotel Accommodation for Business purpose, if the Accommodation happens in a state other than your base state, ITC for the same cannot be available.

This situation is applicable not only for Hotel accommodation, but also for exhibitions, events, training sessions, seminars, conferences etc., where the service happens and ends within a premises. So if you are engaging in any of the above services in other state, the ITC for the same is restricted even though they are for the furtherance of Business.

In the erstwhile Service Tax, the Service Tax charged by Hotels, Exhibitions etc., from any state to any state is uniform rate of tax and the same can be availed as ITC throughout India.

But now in GST Act, the services provided by Hotels, Exhibitions etc., from the same state alone eligible for ITC and if issued from other state where the PoS is different from your base location the ITC becomes ineligible.

This override the concept of “ONE NATION ONE TAX” slogan and, it is a state wise tax benefit.

In a country like India where multiple states are located and business people travel one place to another for business purpose, trainings, marketing, procurement etc., will spend huge amount in GST for their business by way of accommodation, transports, events, exhibitions, seminars, training sessions for their business, but all those GST is lost due to the PoS restrictions. Thus affecting the “Seamless ITC” throughout the country concept is also defeated.

Now we need to find such services within our state if we really want to avail ITC for those services, or else the GST tax will be an added cost.

So, these type of expenditures happening in other states, where the Place of Supply is different, those ITC values should be declared in Table 4(D)(2) now.

Apart from these genuine cases, if our supplier files his GSTR1 returns erroneously mentioning Place of supply code different from our state, those transactions also becomes ineligible for you.

In case of Goods, if we have asked for delivery of goods to a different place (Bill to Ship to Concept) the final destination of the Goods is the actual Place of Supply as per Section 10(1)(a) of the IGST Act. Similarly any of your supplier of goods wrongly mention the PoS Code in their returns that also becomes ineligible for us to avail ITC in GSTR3B.

Hence we have to carefully analyse GSTR2B report whether our supplier has marked PoS correctly in their returns and wherever they have wrongly mentioned, we should not avail the ITC and take this issue with our supplier to amend their returns to rectify the PoS code error.

This is one of the important compliance to be adhered by us, since if we wrongly availed ITC for the wrong PoS the same will not match with GSTR2B report and there are chances for department issue notice for wrong Availment of ITC and levy penalty for the same.

Just to reiterate, while reconciling your Purchase register with GSTR2B report, apart from checking whether the supplier has filed the details of Invoices issues to us, we also need to check what PoS the supplier has mentioned in their return and whether it is eligible for us to avail ITC.