Recent Amendments – Rule 36(4) of CGST Rules & GST E-Invoicing

GST has been a major structural reform of the current government. Replacing multiple taxes of state and central governments into a single tax has given a major relief to trade and industry. However, since the introduction of GST in India in 2017, it has seen several changes. The current article covers some of such significant changes in GST introduced by the Government primarily to curb tax evasion.

Following graph depicts the data for GST collection in the current Financial Year:-

The graph clearly depicts a downward trend in GST collections on a monthly basis. In fact the collections dropped sharply to a 19-month low of Rs 91,916 crore in September 2019. Consequently, the Government has been keen to plug revenue leakages and has made some key amendments in the GST Act and Rules. Detailed analyses of significant amendments in the GST Rules are explained below:-

1. Rule 36(4) of the CGST Rules 2017

As per the new rule 36(4) inserted vide Notification No. 49/2019 dated 09^th October 2019,  a taxpayer can claim provisional Input Tax Credit (ITC) only to the extent of 20% of the eligible credit available, in respect of invoices or debit notes, the details of which have been uploaded by its suppliers. Let us understand the above by way of an illustration:- 

Illustration I

Mr. X has a wholesale business in electrical items. Following table depict his summary of GST supplies in the month of October 2019.

Particulars		Amount (Rs.)
GST on Outward Supplies	A	1,20,000
GST on Inward Supplies or ITC	B	1,00,000
ITC on Invoices, details of which have been uploaded Suppliers	C	70,000
ITC Available to Mr. X	D = C * 120%	84,000
Total GST payable to the Government	E = A -D	36,000

While Mr. X should have paid only Rs. 20,000/- (,120,000 -1,00,000) to the government, in order to comply with rule 36(4) Mr. X had to pay Rs. 16,000/- more which he will be able to claim in subsequent months when the suppliers upload the pending invoices.

Following are few important points to be noted w.r.t. Rule 36 (4):-

• GST Portal does not have the functionality to restrict Input Tax Credit. Input Tax Credit in accordance with the newly introduced rule has to be calculated on self-assessment basis.
• Applicable only on Invoices/ Debit Notes on which credit is availed after 09^th October 2019.
• Restriction is not supplier wise but linked to overall eligible credit.
• ITC Restriction, i.e. 20% of eligible ITC to be calculated on the basis of GSTR-2A as available on the due date of filing GSTR-1.
• No restriction on ITC in respect of IGST paid on imports, Reverse Charge Mechanism, credit received from Input Service Distributor.

GST Council in its 38^th Meeting on 18^th December 2019 has further restricted ITC for invoices which have not been uploaded by suppliers to 10% of eligible credit available in respect of invoices or debit notes reflected in FORM GSTR-2A.

Following challenges arise in front of taxpayers while ensuring compliance:-

• Regular follow-up with suppliers to minimize loss or delay in availment of ITC.
• Archival of GSTR-2A and its reconciliation in order to evidence compliance of the newly inserted sub rule.
• Dealing with suppliers who are filing quarterly returns. This may also impact business of small and medium enterprises as big corporate may not be willing to work with dealers who file their GSTR-1 on a quarterly basis.

2. E-Invoice

The Central Government vide CGST Notification No. 68/2019,69/2019,70/2019, 72/2019, has amended the Central Goods and Services Tax Rules, 2017, thereby introducing the Central Goods and Services Tax (Eighth Amendment) Rules, 2019. These rules have been brought to implement the provisions of Electronic Invoicing.

W.e.f. 01^st April 2020, evey taxpayer whose aggregate turnover in a financial year exceeds Rs 100 Crores shall prepare an E-invoice. Further, an invoice issued by a registered person, whose aggregate turnover in a financial year exceeds Rs 500 Crores, to an unregistered person (B2C invoice), shall have Quick Response (QR) code.

What is E-invoice?

E-invoice does not mean generation of electronic invoice on GST Portal but reporting of electronic Invoice. E- invoice is an invoice which has unique invoice reference number (‘IRN’) generated by Invoice Registration Portal (‘IRP’)

E-invoice will be created by Taxpayers on their own accounting/billing/ERP System. The e-invoice, as prepared, will be reported on Invoice Reference Portals (IRP). IRP will generate unique Invoice Reference Number (IRN) which will be attached on the e-invoice and system will digitally sign the same and return to taxpayer (supplier) as well as recipient. 

Advantages of E-invoice

E-invoicing will act as a double edged sword which will have the following benefits:-

Increase ease of doing business

• GST System will generate E-way bill from the E-invoice data. This will eliminate manual processing time and errors.
• Once fully rolled out, GST System will prepare the Return where only few details like B2C sales, imports etc. will have to be filled by taxpayer and taxes paid. 

Curb Tax Evasion

• Tax authorities will have access to transactions as they take place in real-time.
• There will be less scope for the manipulation of invoices since the invoice gets generated prior to carrying out a transaction.
• It will reduce the chances of fake GST invoices and the only genuine input tax credit can be claimed as all invoices need to be generated through the GST portal.

CONCLUSION

Aimed typically at making things simpler and plugging leakages, the current form of GST is quite different from what it was during its launch. Going by international experience, GST has taken between two to five years to stabilise. After overcoming initial hiccups, the painful migration, it is important that the taxpayer community along with professionals support the government for some more time as we expect the system to stabilize within the next two years.

GSTN Network: The biggest challenge even today is fine-tuning the IT system to cater to the requirements of both taxpayers and the tax administration. This is particularly challenging since nothing of this kind, or of this order of magnitude, has been designed for administering a tax.

Simplification of Law: Another expectation from the Government would be to identify steps to curb tax evasion without increasing the complexity. In order to encourage compliance, it is inevitable that the law is simplified, especially, keeping in mind the resources available with the Small and Medium Sector.