prpri Practical issues on ITC after Notification No. 94/2020-Central Tax Practical issues on ITC after Notification No. 94/2020-Central Tax

The Central Board of Indirect Tax and Custom (CBIC) has released Notification 94/2020-Central Tax dated: 22.12.2020 where the CGST Rules were further amended as Fourteenth Amendment.

Of many amendments made under Notification 94/2020 we are now looking about the changes affecting Input Tax Credit (ITC) for the assessees.

These amendments are made to the Rules 21, 36 & 86

As per the Sl No 4 of the Notification, the Rule 21 was amended and three new clauses were inserted as 21(e); 21(f) & 21(g) which reads as below:

“(e) avails input tax credit in violation of the provisions of section 16 of the Act or the rules made thereunder; or

(f) furnishes the details of outward supplies in FORM GSTR-1 under section 37 for one or more tax periods which is in excess of the outward supplies declared by him in his valid return under section 39 for the said tax periods; or

(g) violates the provision of rule 86B.”

As we are all aware, the Rule 21 pertains to ‘Cancellation of Registration’ on certain cases. Hence as per the new insertions, the GST Registration can be cancelled by the department if

  • The Assessee has claimed ITC more than what is eligible under Sec 16
  • Outward Supply details (Sales) declared more than one time in GSTR1 by mistake
  • Violates Rule 86B, which is inserted now under this notification

In simple words, excess claim of ITC leads to GST Cancellation if the department feels it is necessary to cancel the registration.

Further in this Notification, the Rule 21A(2) also amended by omitting the words “,after affording the said person a reasonable opportunity of being heard,” which enables the department to suspend the GSTN without giving opportunity for Personal hearing of the Assessee.

However a new proviso inserted for the Rule 21A(4) as below:

“Provided that the suspension of registration under this rule may be revoked by the proper officer, anytime during the pendency of the proceedings for cancellation, if he deems fit.”.

Hence, even if the department cancels GSTN registration without hearing, the Assessee can represent his case to the officer and request for revoking suspension.


Second amendment in this Notification is with regard to Rule 36(4). With this amendment, the tolerance limit was reduced from 10% to 5%. Hence an Assessee can avail ITC only upto 105% of his Suppliers filed data in their respective GSTR1, which is populated as GSTR2A / GSTR2B for the Assessee.

The difference between GSTR2A and GSTR2B is that

  • GSTR2A have the details of Invoices filed by the Suppliers for the ‘Particular Return period’ which will be changing day by day whenever the Supplier files his returns. This will have data pertaining to a particular return period only
  • GSTR2B have the details of Invoices filed by the Suppliers ‘during a Return period’ which will be constant after the return filing due date. This will have all the Invoices filed by the Supplier filed ‘during the return period’ which may include Invoices pertaining to the previous returns period

Hence the ITC as per GSTR2B will be higher than GSTR2A since GSTR2B will have ITC of previous months also.

On the other hand, while the Recipient files his GSTR3B, his ITC may also contain ITC from the Invoices issued by his Suppliers for the previous periods also.

As per the GST Act, claiming ITC on the bills issued by the supplier during the previous financial year can be availed till September month of the subsequent year. That is a Recipient can claim ITC on the bill issued by his supplier during April 2019, even in his GSTR3B for the month of September 2020.

Hence the Recipient’s ITC in GSTR3B is always more than that of the ITC available in GSTR2B of that particular month and hence it may be disallowed if it exceeds 105% as per the new amendment.

Further in a country like India, a consignment from Delhi to Madurai takes 5-8 days of transit. Let’s see a practical example here:

If the Supplier in Delhi issues an Invoice in December 28th for the consignment to Madurai, and the consignment may be reaching the Recipient by 5th of January.

In this case, the Supplier will be declaring this transaction in his December month’s GSTR1 whereas the Recipient will be considering the ‘same transaction’ for claiming ITC in his January month’s GSTR3B.

The ITC claimed in GSTR3B of January will not be available in GSTR2B of January but in GSTR2B of December. For this very particular reason, how come the Recipient liable to lose his ITC? In any case the Recipient cannot claim ITC in his December GSTR3B as the Material was still in transit as of December 31st. Claiming ITC without receiving consignment is again a violation of Section 16, which also leads to cancellation of GSTN.

Hence, the Month on Month matching of GSTR3B vs GSTR2A/2B is practically not possible and even if reconciled the Recipient may get lesser ITC than that of what he is actually eligible under the GST Act.

This will lead to increased cash flow for the Recipient even though he has eligible Credit to be claimed.

Secondly, there may be chances of Supplier not filing their returns properly within due date, or the Supplier could be a Quarterly return filing Assessee.

Even in these situations, the Recipient, after receiving the consignment in full and having valid documents for claiming ITC, he cannot claim ITC until the Supplier files his returns, as per the conditions laid by Sec 16. Now the new amendment enables Cancellation of GST if Sec 16 was violated.

Practically the Recipient will not be able to claim his ‘eligible’ ITC even after having all valid documents, due to Supplier not filing.

Supplier filing in previous month and Recipient claiming ITC in the subsequent month due to delay of consignment arrival (which is normal in our country due to large geographical area) is also impact Recipient as the Rule 36(4) limits ITC to the particular month transactions.


The next amendment in this Notification is the new insertion of Rule 86B which reads as below:

86B. Restrictions on use of amount available in electronic credit ledger.-Notwithstanding anything contained in these rules, the registered person shall not use the amount available in electronic credit ledger to discharge his liability towards output tax in excess of ninety-nine per cent. of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees”

The above Rule is subject to the following provisions:

“Provided that the said restriction shall not apply where –

(a) the said person or the proprietor or karta or the managing director or any of its two partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees, as the case may be, have paid more than one lakh rupees as income tax under the Income-tax Act, 1961(43 of 1961) in each of the last two financial years for which the time limit to file return of income under subsection (1) of section 139 of the said Act has expired; or

(b) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (i) of first proviso of sub-section (3) of section 54; or

(c) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (ii) of first proviso of sub-section (3) of section 54; or

(d) the registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, upto the said month in the current financial year; or

(e) the registered person is –

(i) Government Department; or

(ii) a Public Sector Undertaking; or

(iii)a local authority;or

(iv) a statutory body:

Provided further that the Commissioner or an officer authorised by him in this behalf may remove the said restriction after such verifications and such safeguards as he may deem fit.”

With this new Rule 86B, an assessee should pay 1% of his liability mandatorily through CASH ledger even if he has adequate ITC in his CREDIT ledger.

The utilization of ITC matrix already left with accumulation of SGST Tax, and this new amendment will further accumulate the ITC for 1% of the total liability every month into the Credit Ledger.

The above three amendments in the Notification 94/2020 will certainly increase the cash flow of the tax payer even though he has a valid and eligible ITC in his records.

Considering the Transportation delays and other practical issues of Return periods, we hope CBIC will come up with a clarification on adhering Rule 36(4) on cumulative basis rather than monthly basis and also to allow late claiming of ITC as permitted by the GST Act 2017.

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