Mechanism of claiming Input (ITC) in GST w.e.f 1st October 2022

Various amendments were proposed to be made in the GST law, in the Finance Budget 2022. These proposals for amendment of various sections have now been made effective from 1st day of October 2022 vide Notification 18/2022-CT dated 29.09.2022.

After the enactment of these amendments, claiming of Input Tax Credit shall become nightmare. Amendments made in relation to Input Tax Credit (ITC) are summarised as below:

New condition for claiming ITC [Section 16 – New clause inserted]

Section 16 of the CGST Act which delas with eligibility and conditions for claiming ITC provides 5 specific conditions in section 16(2) which are as below:

(a) The taxpayer is in possession of tax invoice or debit note;

(aa) The detail of above invoice / debit note is communicated in GSTR 2B of the taxpayer;

(b) The taxpayer has received that goods or service;

(c) The supplier has made payment of GST applicable on such supply;

(d) The taxpayer has claimed ITC and furnished its return.

Now by virtue of amendment, a new clause (ba) is inserted in the above list which provides as below:

(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;

This means that the details of Invoices / Debit note communicated to the taxpayer in GSTR 2B as per section 38, should not be restricted from claiming ITC.

What is Section 38 ??

Before 01.10.2022, section 38 of the CGST Act dealt with furnishing of details of Inward supply and prescribed for filing of Form GSTR 2 containing detail of inward supplies on which the taxpayer is claiming ITC. However, this mechanism could never be implemented since implementation of GST law.

Now by virtue of this amendment, entire section 38 is substituted  w.e.f 01.10.2022 with a new section which provides for ‘Communication of details of inward supplies and Input Tax Credit’. The name itself makes it clear that the earlier mechanism of filing of GTSR 2 for claiming ITC is now officially scrapped and an entire new concept is introduced.

As per the new section 38, the details furnished by the supplier in GSTR 1 shall be communicated to the taxpayer in an auto-generated statement GSTR 2B. This statement shall consist of 2 parts.

i. One part shall consist of details of inward supplies in respect of which credit of input tax may be available to the recipient; and

ii. Another part shall provide details of supplies in respect of which such credit cannot be availed, by the recipient. This list shall be generated on the basis inward supplies received from:

a. a newly registered supplier (prescribed time limit); or

b. a supplier who has defaulted in payment of tax and where such default has continued for such period as may be prescribed; or

c. a supplier whose tax payable is more than tax paid during the said period by such limit as may be prescribed; or

d. a supplier who has claimed ITC of an amount more than ITC eligible to claim as per GSTR 2B; or

e. a supplier who has utilized ITC for payment of output tax, more than the limit prescribed; or

f. by such other class of persons as may be prescribed.

The above section introduces a completely new mechanism under which the auto-generated GSTR 2B shall itself decide and provide the list of Invoices or Debit notes on which ITC can be claimed by the taxpayer.

Now a question which comes to our mind is whether it is mandatory to claim ITC as per GSTR 2B generated under section 38?

As per the newly inserted clause (ba) in section 16(2), it provides mandatory condition that ITC claimed by recipient should not be restricted under section 38. Hence ITC restricted or in-eligible as per GSTR 2B cannot be claimed as per clause (ba) of section 16(2).

Extension of time limit for claiming missed ITC

Last date for claiming any ITC related to preceding FY (i.e. Tax Invoice or Debit Note) is extended from 20th October (Due date for furnishing GSTR 3B for the month of September) to 30th November of the subsequent FY. So, if there is any ITC related to FY 2021-22 which is still not claimed, can be claimed upto 30th day of November 2022.

Similarly, the time limit of 20th October prescribed in section 34 for declaring detail of a Credit Note pertaining to any supply made in preceding FY is also revised and allowed upto 30th November or furnishing of Annual Return, whichever is earlier.

‘Provisional ITC’ and ‘Matching Concept’ – Scrapped

Section 41 of the CGST Act provided that the ITC claimed by a taxpayer in GSTR 3B shall be provisional, until it is matched and finalised as per provision of section 42 & 43 and corresponding rules. However, this mechanism could also never be implemented as GSTR 2 return was never filed.

Now this entire concept is being scrapped by substituting section 41 and section 42 & 43 being omitted. The new section 41 provides that the taxpayer shall self-assess and claim ITC in GSTR 3B. It further provides that in case the taxpayer has claimed ITC of GST which is not paid/ deposited by the corresponding supplier, than the taxpayer / recipient shall reverse the ITC along with interest.

The recipient shall be eligible to re-claim the ITC reversed, on payment of GST by the supplier.

NOTE:

The above provisions have brought in a new era of Input Tax Credit in the GST law. Now claiming of any input is dependent on proper and regular compliance of supplier. Any kind of delay or default in payment and / or compliance by the supplier shall restrict the taxpayer from claiming Input of GST paid. Therefore, a taxpayer should choose its supplier wisely to avoid any kind of loss and litigation. 

Restriction in maximum utilization of ITC

There has been Rule 86B inserted in CGST Rules for a while. This rule was inserted and made effective from 01.01.2021. As per this rule a taxpayer shall not utilize ITC towards payment of its output tax liability in excess of 99% of the output tax liability. This restriction was subject to certain exemptions. There has been dispute over validity of this provision since implementation, as there was no section in the CGST Act which allowed such restriction.

Now an amendment is made to CGST Act by inserting sub-section (12) to Section 49 of the CGST Act. Section 49 deals with payment of Tax, Interest and Penalty. The newly inserted sub-section (12) provides that the Government shall specify the maximum proportion of output tax liability which may be discharged through utilization of ITC.

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