Article on impact of circular No. 123/42/2019 –GST dated.11.11.2019 (Restriction in availment of input tax credit of sub-rule (4) of rule 36 of CGST Rules, 2017) under GST Law, 2017) on business community under GST Scenario.
Dear Colleagues, good morning. You are all aware that CBIC has given Circular on Restriction in availment of input tax credit under GST Law,2017 ,vide Circular No. 123/42/2019-GST dated.11.11.2019. I am trying to present my article at my best of knowledge for better understanding and know the impact on tax payers doing business and extra work burden on tax professionals under GST Scenario.
Before going to a conclusion on the above subject we have to refer important sections relating to Input Tax Credit as per Sec.16 to 21 CGST Law,2017 and read with rule 34 & 37 of CGST Rules 2017.
Sec.16 deals with Eligibility and Conditions for taking ITC on inward supply of goods and services :
Sec.16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) Not withstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––
(a) He is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) He has received the goods or services or both.
Explanation.—For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(c) Subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
(d) He has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or installments, the registered person shall be entitled to take credit upon receipt of the last lot or installment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon .
(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.
Rule.36 of CGST Rules,2017, (Input Tax Credit under GST Scenario):
Provisions under Rule 36 of the Central Goods and Services Tax (CGST) Rules, 2017 relating to “Documentary Requirements and Conditions for claiming Input Tax Credit”, are as under:
Rule 36 of CGST Rules,2017: Which deals with “Documentary Requirements and Conditions for claiming Input Tax Credit” (Chapter-V: Input Tax Credit):
(1) The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely,-
(a) An invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31.
(b) An invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to the payment of tax.
(c) A debit note issued by a supplier in accordance with the provisions under section 34;
(d) A bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made there-under for the assessment of integrated tax on imports;
(e) An Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule 54.
(2) Input tax credit shall be availed by a registered person only if all the applicable particulars as specified in the provisions of Chapter VI are contained in the said document, and the relevant information, as contained in the said document, is furnished in FORM GSTR-2 by such person.
Provided that if the said document does not contain all the specified particulars but contains the details of the amount of tax charged, description of goods or services, total value of supply of goods or services or both, GSTIN of the supplier and recipient and place of supply in case of inter-State supply, input tax credit may be availed by such registered person.
(3) No input tax credit shall be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts.
* Sub-rule (4) to rule 36 f the CGST Rules,2017 (hereinafter referred to as the CGST Rules) has been inserted vide notification No.49/2019 –Central Tax, dated.09.10.2019. The said sub-rule36(4) provides that “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 supplier under sub-section (1) of section 37, shall not exceed 20% 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 sec.37.”
Sec 43 A has been inserted vide the CGST amended Act,2018 which deals with the provisions of procedure and furnishing of return which restricts the ITC exceeding 20% of eligible credit for the invoices not reflecting in GSTR-2A.
Rule 37 of CGST Rules,2017:
Provisions under Rule 37 of the Central Goods and Services Tax (CGST) Rules, 2017 relating to “Reversal of Input Tax Credit in the case of Non-payment of Consideration”, are as under
CGST Rule 37: Reversal of Input Tax Credit in the case of Non-payment of Consideration (Chapter-V: Input Tax Credit)
(1) A registered person, who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof, the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to sub-section (2) of section 16, shall furnish the details of such supply, the amount of value not paid and the amount of input tax credit availed of proportionate to such amount not paid to the supplier in FORM GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice:
Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.
Provided further that the value of supplies on account of any amount added in accordance with the provisions of clause (b) of sub-section (2) of section 15 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.
(2) The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax liability of the registered person for the month in which the details are furnished.
(3) The registered person shall be liable to pay interest at the rate notified under sub-section (1) of section 50 for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability, as mentioned in sub-rule (2), is paid.
(4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier.
Now we have to analyze Rule 36(4) of CGST Rules:
1. Eligibility of Input Tax Credit shall be determined in accordance to chapter V of the CGST Act and Rules made there under which deals with input tax credit sec.16 to 21 of the CGST Act,2017.
2. Rule 36(4) of CGST Rules,2017, the restriction is not imposed through the common portal and it is responsibility of the taxpayer that the availlment of restricted credit shall be done self-assessment basis by the tax payers.
3. For computing the eligibility credit, the following may be considered as ineligible credit:
> Credit restricted under section 17(5) of CGST Act,2017,
> Inward supplies used exclusively in providing the exempted supply,
> Inward supplies partly used for exempt supply,
> Inward supply partly used for non-business purpose.
Now we have to follow the below procedure to reconciliation:
> Verify and observe the invoices or debit notes are reflected in both GSTR-2A and Purchase register of your client books of accounts and returns.
> Invoices or debit notes reflecting in GSTR-2A but credit not availed in GSTR-3B either due to compliance of section 16or invoices not related to the tax payer,
> Invoices or debit notes for which input tax credit to be availed in GSTSR-3B but invoices or debit notes are not reflected in GSTR-2A,
> Rule 36(4)deals with the below scenario as discussed above,
> Under that circumstances Input Tax Credit shall be available to the extent of 20% of eligible credit available, as per the details uploaded by the supplier.
|i).Invoices reflecting in GSTR-2A||“A”||5,00,000-00|
|II). Debit notes as reflecting in GSTR-2A||“B”||1,00,000-00|
|III). Credit Notes as reflecting in GSTR-2A||“C”||2,00,000-00|
|Total Credit as per GSTR-2A (D=A+B-C)||“D”||4,00,000-00|
|Invoices or debit notes that matches with GSTR-2A||“E”||1,50,000-00|
|Invoices or debit notes found in GSTR-2A but credit can|
|be availed in next tax periods in compliance with Sec.16||“F”||50,000-00|
|Invoices or debit notes found in GSTR-2A but the|
|Input Tax Credit skip to aviled in respective tax period||“G”||1,00,000-00|
|Invoices or debit notes as reflecting in GSTr-2A but|
|not related to tax payer||“H”||50,000-00|
|Total of (E+F+G+H+) =A+B)||3,50,000-00|
|Common Input Tax Credit attributed to exempted|
|supply out of E&G||“I”||10,000-00|
|Credit restricted under sec.17(5) out of E&G||“J”||10,000-00|
|Credit attributed to non-business purpose our of E&G||“k”||15,000-00|
|Credit attributed to used exclusively for exempt supply|
|out of E&G||“L”||16,000-00|
|Eligible credit (E+G-I-J-K-L)||“M”||1,99,000-00|
|20% of eligible credit (M*20%)||“N”||39,800-00|
|Invoices or debit notes not found in GSTR-2A but the invoices and goods received during tax periods ( May be quarterly filers )||“O”||50,000-00|
|Credit can be availed for point N or O , whichever is lower||“P”||10,200-00|
|Total Gross Input Tax Credit cam be availed (E+G+P)||=||2,60,200-00|
Dear tax professionals, the above task is not an easy task in my opinion. It is a heavy work burden on tax professionals. The taxable person is least bothered about the above exercise and simply thinks that it’s like a ball in the court of tax professional as he’s responsible for filing the returns. Under VAT Scenario a tax professional handled an average of 100 files per month within the due date but after the introduction of GST he couldn’t handle more than 50 files. Now after the amendment to sec.43A and the inserted rule 36(4) of CGST Rules,2017 such tax professional can’t handle 25 files per month to return filing within the due date in my practical experience. Already introduced New Returns system in GSTR-1 . GSTR-2 ND GSTR-3 returns along with annexures 1,1A,2 and 2A instated of GSTR-1,GSTR-2,GSTR-3B from April,2020. In the mean time they have inserted new rule 36(4) w.e.f. 11.11.2019.
Further CBIC introduced the new sec.43A through CGST amendment Act,2018 which deals the procedure for furnishing return and availing Input Tax Credit till date,but sec.43A is not in force. Therefore, the aforesaid provision prescribed under rule 36(4) may not be effective till sec.43A is notified. So, in my opinion the above circular no.123/42/2019-GST is to be challenged in the Court of Law. As per the information Hon’ble High Court of Gujarat and Hon’ble High Court of Delhi admitted the writ petitions and issued notices to CGST Department and Government of India for filing counters. So, we will wait till the courts pronounce their opinion.