K.Rengaraj, Advocate

K. Rengaraj

Delay in filing of Form GSTR-1 Return Government undertakings and hardships faced by GST Assessees after amended Rule 36(4) of CGST Rules, 2017.

Introduction: In this article we are going to discuss about hardships faced by the Tax payers due to delay in filing of GSTR 1 Return by GST Registered Government undertaking, after the amended Rule 36(4) of CGST Rules and not reflected in GSTR 2B. Before proceeding let us analyse the harsh and severe Rule 36(4). As per the sub-rule (4) inserted in rule 36 of the Central Goods and Service Tax Rules, 2017, a taxpayer filing GSTR-3B can claim provisional Input Tax Credit (ITC) only to the extent of 5% of the eligible credit available in GSTR-2B. The amount of eligible credit is arrived upon those invoices or debit notes, the details of which have been uploaded by the suppliers and reflected in GSTR-2B. The new percentage applies from 1st Jan 2021 onwards. The ITC claim was earlier restricted to 10% between 1st Jan 2020 and 31st Dec 2020 whereas it was 20% for the period from 9th Oct 2019 till 31st Dec 2019. This has created lot of hardships to the assessees which in turn increased their cash payments to discharge the output tax liability as they cannot avail more than the ITC reflected in GSTR 2B plus 5% as per Rule 36(4), as amended.

The Hon’ble Gujarat High Court has recently issued notice to the Government on the writ challenging the validity of Sub-rule (4) of the Rule 36 of the CGST Rules which restricts the ITC to a buyer of goods of services on the basis of the details of the outward supply furnished by the supplier of the services of goods or on the basis of the common portal. The petitioner, Surat Mercantile Association challenged the Rule 36(4) of the CGST Rules and the Gujarat GST Rules on the ground that, the same is violative of Article 14 of the Constitution.

As per Rule 36(4) of the CGST Rules availing of Input tax credit is restricted  by the buyer of goods or services in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers in GSTR-1 return, to 5% of “eligible credit” available in respect of invoices or debit notes the details of which have been uploaded by the suppliers in GSTR-1 return and  which are reflected in GSTR-2B of the recipient.

The Department has also issued a Circular No. 123/42/2019-GST dated 11.11.2019, clarified the circumstances to avail ITC under sub-rule (4) of Rule 36.

♦ The availment of restricted credit under Section 36(4) shall be done on self-assessment basis by the Assessee.

♦ Restrictions of Rule 36(4) will be applicable only on the invoices/debit notes on which ITC is availed.

♦ Restriction under Rule 36(4) shall be imposed only in respect of those invoices/debit notes, details of which are required to be uploaded by the suppliers in GSTR-1 and which have not been uploaded.

♦ However, Full ITC is eligible in respect of:

a. IGST paid on import through bill of entry,

b. Self invoices issued under RCM,

c. Credit received from ISD

d. Re-availment of credit under rule 37

e. Re-availment of credit after year under calculation of Rule 42

f.  ITC claimed through ITC-01, ITC02, TRAN-1, TRAN-2 and TRAN-3

provided that eligibility conditions for availment of ITC are fully satisfied in such cases.

♦ The restriction on 5% provisional credit will not be supplier-wise. It will be linked to the total eligible ITC from all the suppliers based on details uploaded and reflected in the GSTR-2B.

♦ At the same time ITC is not available on the invoices which are under blocked credit provision.

The full details of Government reply to the Notice of Gujarat HC in the said WP is not readily available.

The situation for the tax payer who is not able to avail the eligible ITC because of the supplier not uploaded their invoices in GSTR1, a recent study denotes that TANGEDCO and TANTRANSCO which are subsidiaries of TNEB are collecting GST for various services in their Bills but have not filed their GST Returns in time which resulted in not reflecting the eligible ITC in the GSTR2B Return of the service recipient. According to sources it is understood that the Department is having single registration for all the services all over Tamilnadu and the invoice details are uploaded only after receiving the data from all the district head quarters which makes inordinate delay in filing the GSTR 1.  The State Government has to immediately look into and resolve such issues faced by the TANGEDCO and pave the way to the tax payer to avail the eligible ITC every month without any hassle.

Because such Input tax credit is accumulated in lacs due to late in filing the GSTR 1/3B Return and the tax payer is not able to utilise the credit due to restriction under Rule 36 (4) of CGST Rules. This TNEB is one example.  There may be many such issues prevailing in other Government department/undertaking.

Conclusion: The author is of the opinion that the said rule 36 (4) is unconstitutional being contrary to the scheme of the Act. It is further submitted that the Rule  puts  heavy burden on the buyer of the goods and service to ensure that the supplier of goods or services upload the details of the outward supplier on the portal and if the supplier fails to do so, the buyer of the goods or services will not be able to avail the ITC benefits. Or if the Department is unable to solve the issue discussed above, the tax payer should be permitted to avail 100% input tax credit as per the books of accounts, based on the invoices on hand issued by Government Department like TANGEDCO.

The author can be reached at [email protected]

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  1. Kàjal kanti Banerjee says:

    Excellent write up. It will be very useful in respect of several tax practitioner and businessmen on going through this elaborate description and write up.

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February 2021