ITC, Interest & Rule 36(4) Dangerous Provision of GST that Every Professional Should be aware

HERE I WANT YOU UNDERSTAND 36(4) AND ITS HIDDEN AGENDA. I Request everyone to read BELOW EXAMPLE. On 36(4). THE danger of 36(4)… Interest cost disguised in it… Do read and discuss with your colleagues. Share with your professional friends… read below example of XYZ LTD.

XYZ LTD HAVE FOLLOWING PURCHASES IN JANUARY, FEBRUARY, MARCH

FOR FILLING GSTR 3B, XYZ LTD HAVE IGNORED PORTAL 2A/2B STATUS. THEY FILED 3B WITH ABOVE ITC FIGURE IN RESPECTIVE MONTH

QUESTION – IN LINE OF 36(4), HE HAS CLAIMED MORE CREDIT IN JAN AND FEB, IS XYZ LTD IS LIABLE FOR ANY INTEREST ? And YES…. but HOW??? There is no excess ITC taken… but still Interest cost will be there.

Author’s Comments –

Game of 36(4) is not only restricted to ITC restriction. but it is more than that. What Govt. intention with 36(4) is TO earn INTEREST… so it’s just not about restricting seamless ITC. If you check in most of your clients, at the end of 3 months, there will be SAME AMOUNT of ITC appearing what you claimed in 3B OF 3 MONTHS. WHAT DANGER LIES HERE. INTEREST PORTION that comes with 36(4) implication.. In the above example, ITC tallies at 3rd month.. claimed 1200000+1200000 ITC total in 3 month… and the same appearing 3rd month 2A.. SO, YOU MAY SAY THERE IS NO PROBLEM…ANSWER – THERE is PROBLEM…. “INTEREST… AS PER 50(3) “… 24% PA on amount claimed excess… in our example, For January, Rs. 16000+16000 and for Feb, it will be 6000+6000… Got shocked????… for a small client it may not be a huge amount… but if your figures are in lacs, You are gone… Even If your GSTR2A appears to be tallied after quarter end or year-end… You may refer below text from Bare act and rules.

HERE I WANT YOU UNDERSTAND 36(4) AND ITS HIDDEN AGENDA. I Request everyone to read BELOW EXAMPLE. On 36(4). THE danger of 36(4)… Interest cost disguised in it… Do read and discuss with your colleagues. Share with your professional friends… read below example of XYZ LTD.

THANKFULLY NO ITC REVERSAL. we HAVE TAKEN ONLY HAPPY SCENARIO. IF THERE WAS ANY INVOICES NOT APPEARING OUT OF 3, THEN THERE WOULD BE REVERSAL ALSO.

Text from law – 36(4) rule of CGST and Section 50(3) for your ready reference.

Rule 36(4) “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 suppliers under sub-section (1) of Sections 37, shall not exceed [10 percent] 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 Sections 37”.

50(3) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding 24% per cent.,

Analysis- Meaning of undue – In context of GST law, anything done with respect to claiming of input tax credit (“ITC”) or/and while calculating output tax liability which is not acceptable or reasonable as per provision(s) of law would be termed as “undue”.

Meaning of excess –Any claim of ITC or/and any reduction in output tax liability which is in excess of the permitted limits as per the provision(s) of GST law would be termed as ‘Excess’.

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