1. Input tax credit to be availed by a registered person in respect of invoice or debit note, the details of which have not been uploaded by the supplier under 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 supplier u/s 37(1)” states the notification no 49/2019 dt 9th October 2019 as Government of India amended rule 36 by inserting new sub-rule 4.

This notification created chaos in the industry. As even though the recipient was fully eligible to claim ITC he wasn’t unable to assert the same.

It can be understood with the help of the following example:

Example: On 1.12, 2019, Mr A supplied goods worth Rs. 2 lacs to Mr B and Mr B, The recipient receives the goods along with the tax invoice issued by the supplier wherein he had charged GST @18% of Rs. 36,000. The recipient after receiving the said invoice released the payment of Rs. 2.36 lacs via debit card.

Now let’s check whether Mr B is eligible to claim credit of Rs. 36,000 paid as tax to Mr A or not. He will be eligible only when he satisfies all the conditions stated in section 16, subsection 2 which are:

a. The recipient must be in the possession of the tax invoice.

b. He must have received the goods or services, as the case may be.

c. Supplier must have paid taxes to the government.

d. The recipient should have filed his valid return. (Since the proposed return system is not effective and as on date GSTR-3B is filed on a monthly basis, which is merely a summary of output and input supplies, so accordingly, the recipient is required to file GSTR-3B).

Case 1. Where all the conditions of sec 16(2) are fulfilled.

Sol: Mr B will claim the whole amount as ITC.

Case 2. Mr A, the supplier doesn’t pay the taxes to the government even after collecting it. Whether now can Mr B, claim the ITC?

Sol: The answer would be No, but is it logical, to not allow him to avail the credit as the default was done on the supplier’s part. Had the proposed return system, been enforced properly, the recipient would have been able to claim the credit without any hindrance as he would have added the details of this invoice in his GSTR 2.

Case 3. Mr A had not uploaded the details of the said invoice in GSTR -1 or might not have filed his return u/s 37(1). So will Mr B be eligible?

Sol. The answer would be No. because the details of the said invoice will not get reflected in GSTR – 2A of the recipient, but again it is not logical to deny credit, just because the default is done by the supplier.

Case 4. Continuing the above case, let’s assume Mr B had a credit of Rs. 200,000 (including the amount of credit on the tax paid to Mr A. of Rs. 36,000) in his books of accounts but his GSTR- 2A depicts an outstanding balance of Rs.120,000. How much credit he can claim in his 3B for the month of December?

Sol. And here comes the rule 36(4) in the picture. According to the said rule he can claim a maximum of Rs. 24,000 i.e. 20% of Rs. 120,000 (Balance as shown by GSTR-2A) in his December 3B as Input tax credit pertaining to invoice(s) amounting to Rs. 80,000 which had not been uploaded by the supplier(s).

There could be other probable reasons other than those mentioned above wherein the details of the missing invoice will not be reflected in GSTR -2A of Recipient.

Belated return filing or filing GSTR-1 on last day of the month following the quarter, where the taxpayer is required to file a return on a quarterly basis, are two of them.

Though the government had reduced this capping of 20% by 10% via notification 75/2019 dated 26th December 2019 which was effective from 1/1/2020.

But the intricacy isn’t resolved yet.

The other major concern is that this percentage of 10 is applied on CONSOLIDATED BALANCE as reflected in GSTR -2A.

Now let’s understand this with the example.

Example. Continuing with the above example, suppose Mr A charges, Rs. 100,000 as GST but by mistake while filing his GSTR -1 he uploaded this as Rs.10,000 then Recipient i.e. Mr B ended up calculating 10% on Rs.120,000  which should otherwise have been 10% of Rs. 220,000 i.e. Rs.22,000. Because of this consolidation, the recipient will not be able to trace the error and would end up taking the less credit though he was entitled to claim more.

Because of all these intricacies, and owing to the new return system government had deferred the implementation of this rule to a later date i.e 1st October 2020 as decided by GST Council in its 39th Meeting dt 14th March 2020.

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  1. Srinivas Hande says:

    Case 3- in the question it must be return under section 39 and not 37. Of course if supplier doesn’t pay tax, recipient does not get it as per section 16. It may however not pass the constitution test as it treats both bonafide and ill willed buyers on same footing

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