CBIC has recently issued notification no. 49/2019-CT dated 9 October 2019, through which sub-rule (4) has been inserted in section 36 of the Central Goods and Services Tax Rules, 2017. By virtue of the said insertion, a restriction has been imposed on the taxpayers for availing input tax credit (ITC). ITC of unmatched credits, can now be availed only to the extent of 20 per cent of the eligible available credits reported in GSTR-2A.
Post the aforementioned notification, various questions have cropped up in the minds of the taxpayers as to for which period the restriction apply, i.e. whether the same would apply for September 2019 returns or for October 2019 returns and whether the same would apply even for FY 2018-19 credits.
The article intents to provide food for thought of the possible interpretation regarding the applicability of the said sub-rule.
Earlier the GST council with the intent to simplify and reduce the compliance burden on the taxpayers, had proposed to introduce a simplified GST return form, which was expected to be implemented from April 2019 (now deferred till April 2020). The proposed simplified return would primarily have two tables, one for reporting outward supplies and other for getting input-tax credit based on invoices uploaded by the supplier. The invoices can be uploaded continuously by the seller and these can be continuously viewed and locked by the buyer for availing ITC. The entire process is referred as ‘Upload-Lock-Pay’. To give effect to the proposal, government had introduced section 43A in the Central Goods and Services Tax Act, through Central Goods and Services Tax (Amendment) Act, 2018. However, the said provision was not made effective.
Further, to address the growing reported cases of GST frauds on account of ITC and also to continue with the base concept of GST i.e. availment of ITC on the basis of matching concept, section 43A provides for restricting credit to the extent of not more than 20 per cent of the ITC available to the recipient. The relevant provision is reproduced as under:
“(4) The procedure for availing input tax credit in respect of outward supplies not furnished under sub-section (3) shall be such as may be prescribed and such procedure may include the maximum amount of the input tax credit which can be so availed, not exceeding twenty per cent. of the input tax credit available, on the basis of details furnished by the suppliers under the said sub-section.”
The newly introduced sub-rule (4) of the rule 36 prescribes the required procedure with respect to availing credit on unmatched ITC.
The question now arises is does rule 36(4) which is effective from 9 October 2019, can be implemented without section 43A becoming effective or whether the rule has been introduced in a haste.