In line with GST Council’s decision of 37th Council meeting on capping input tax credit, sub-rule (4) to rule 36 of the CGST Rules, 2017 has been inserted vide Notification 49/2019 dated 9th October, 2019 which makes it mandatory to review inputs as appearing in GSTR-2A of the taxpayer. It mandates that the taxpayer shall not avail input in excess of 20% of the eligible credit available in GSTR-2A over and above the eligible credit. For achieving this, the taxpayer needs to conduct monthly reconciliation of input with GSTR-2A and then avail the input accordingly (maximum capped to 120% of eligible credit available subject to actual input available) in GSTR-3B.

After notification of this rule, there were ambiguities regarding its application and there were many questions unanswered like –

  • GSTR-2A being a dynamic form, the inputs shall be compared as on which date.
  • How to claim ITC for the inputs which have been received from taxpayer filing quarterly return.
  • Whether to take into consideration the inputs as available from reverse charge, ISD credit etc.
  • Whether the credit would be blocked by portal itself or will be ascertained by taxpayer on self-assessment basis.

In order to bring all ambiguities to rest, Central Board of Indirect Taxes and Customs (CBIC) has issued a Circular No. 123/42/2019-GST dated 11th November, 2019. In this circular, CBIC has discussed various issues and their solutions. It has clarified that restriction on input shall not be imposed through common portal and will be the responsibility of the taxpayer to claim restricted input on self-assessment basis.

Further following issues has been clarified by the Circular:

  • The restriction on availment of input is imposed only upon such invoices / debit notes which are required to be uploaded by the suppliers in their GSTR-1.
  • Full ITC in respect of IGST paid on imports, documents issued under RCM, credit received from ISD may be obtained without any restrictions.
  • The restriction shall be applicable only on invoices / debit notes on which credit is availed after 9th October, 2019.
  • The restriction imposed shall not be calculated supplier wise but on total eligible credit from all suppliers against all supplies.
  • The calculation would be based only on such invoices / debit notes which are eligible for ITC. For instance if any input is not eligible or is ineligible u/s 17(5) of the CGST Act, 2017, then such ineligible input shall not be considered for calculating 20% of eligible credit.
  • The input tax credit eligibility shall be calculated based on the entries in GSTR-2A as on the due date of filing of GSTR-1 by the supplier. This implies input tax credit from only those suppliers who have filed their GSTR-1 within 11th of the succeeding month (for monthly taxpayers) shall be taken into consideration for calculation of 20% restriction.
  • Regarding taxpayers who file their return on quarterly basis. There are two possible approaches which a taxpayer may adopt:
    • Avail input tax credit quarterly after the supplier has filed their GSTR-1. This will lead to deferment of input tax credit and may also cause additional cash outflow.
    • Avail input tax credit in the same tax period as envisaged under section 16 of the CGST Act, 2017. The rationale behind taking such input is that the law restricts availment of input only when the supplier has not uploaded their GSTR-1 within due dates. The quarterly taxpayer is not required to file its GSTR-1 within the tax period, therefore the question of restriction does not arise. This approach, may however, is precarious and may lead to future litigations.

The circular has also provided an illustration regarding application of sub-rule (4) of rule 36 of CGST Rules, 2017. For the sake of uniformity, the same illustration has been produced hereinunder:

Illustration 

A taxpayer “R” receives 100 invoices (for inward supply of goods or services) involving ITC of Rs. 10 lakhs from various suppliers during the month of Oct, 2019 and has to claim ITC in his FORM GSTR-3B of October, to be filed by 20th Nov, 2019.

Scenario Details of supplier’s invoices for which recipient is eligible to take ITC 20% of eligible credit where invoices are uploaded Eligible ITC to be taken in GSTR-3B to be filed by 20th Nov, 2019 When balance ITC can be taken
1 Suppliers have furnished 80 invoices in GSTR-1 involving ITC of Rs. 6 lakhs as on the 11th Nov, 2019 Rs. 1,20,000/- Rs. 7,20,000/- [Rs. 6,00,000/- amount of eligible ITC available as per GSTR-2A + Rs. 1,20,000/- (20% of eligible ITC as per GSTR-2A)] Balance ITC of Rs. 2.8 lakhs may be taken when the suppliers upload details of some of the invoices for the tax period involving ITC of Rs. 2.3 lakhs out of invoices involving ITC of Rs. 4 lakhs details of which had not been uploaded by the suppliers within 11th Nov, 2019.

[Rs. 6 lakhs + Rs. 2.3 lakhs = Rs. 8.3 lakhs]

2 Suppliers have furnished 80 invoices in GSTR-1 involving ITC of Rs. 7 lakhs as on the 11th Nov, 2019 Rs. 1,40,000/- Rs. 8,40,000/- [Rs. 7,00,000/- amount of eligible ITC available as per GSTR-2A + Rs. 1,40,000/- (20% of eligible ITC as per GSTR-2A)] Balance ITC of Rs. 1.6 lakhs may be taken when the suppliers upload details of some of the invoices for the tax period involving ITC of Rs. 1.3 lakhs out of invoices involving ITC of Rs. 3 lakhs details of which had not been uploaded by the suppliers within 11th Nov, 2019.

[Rs. 7 lakhs + Rs. 1.3 lakhs = Rs. 8.3 lakhs]

3 Suppliers have furnished 75 invoices in GSTR-1 involving ITC of Rs. 8.5 lakhs as on the 11th Nov, 2019 Rs. 1,70,000/- Rs. 10,00,000/-

[Rs. 8,50,000/- amount of eligible ITC available as per GSTR-2A + Rs. 1,50,000/- (the additional amount of ITC availed shall be limited to ensure that the total ITC availed does not exceed the total eligible ITC.)]

Not applicable

It may be noted that the balance proportionate ITC may be availed by the taxpayer in any of the succeeding months when the requisite invoices are uploaded by the supplier in their GSTR-1. The proportion of ITC claimed shall be such that that total ITC claimed for the tax period shall not exceed 120% of eligible ITC uploaded by the suppliers. In other words, taxpayer may avail full ITC in respect of a tax period, as and when the invoices are uploaded by the suppliers to the extent Eligible ITC / 1.2 or Eligible ITC / 120%.

In the instant case, the ITC of Rs. 10 lakhs may be claimed by Mr. R as and when his suppliers furnish their GSTR-1 to the tune of Rs. 8.3 lakhs [Rs. 10 lakh / 1.2] tax amount in aggregate. This may be understood as under:

Month Invoices uploaded by suppliers involving tax during the month (Rs.) Eligible ITC for the month (Rs.) Remarks
Oct-19 6,00,000 7,20,000 Rs. 6,00,000/- x 120% not exceeding Rs. 10 lakhs
Nov-19 2,00,000 2,40,000 Rs. 2,00,000/- x 120% not exceeding Rs. 10 lakhs
Dec-19 1,00,000 40,000 Rs. 1,00,000/- x 120%, however this month the eligible ITC is exceeding Rs. 10 lakhs (as per calculation). Therefore, it should be restricted to Rs. 10 lakhs.
Jan-19 75,000 0 As entire amount of Rs. 10 lakhs has been taken. No further ITC shall be availed.
Feb-19 25,000 0

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Company: D J A S & Co.
Location: Kolkata, West Bengal, IN
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7 Comments

  1. KAILASH GOYAL says:

    HOW IT IS POSSIBLE TO HOLD ACESS OF GSTR 2 -A OFF 11TH OF THE MONTH IN CASE OF MONTHLY FILER WILL WE HAVE TO DOWNLOAD AT MIDNIGHT OF 11TH BECAUSE 2a IS UPDATED ON INSTANT BASIS IT IS NOT AVAILABLE ON DATE BASIS The govt has made the gst an act to punish the taxpayers by issuing such type of notices let the officials sit and explain how it can be done

  2. vswami says:

    IMPROMPTU

    1. The comment posted @
    Reconciliation of GST Input Credit with 2A report- Is RCM a solution?
    may be looked up; which is of relevance in regard to the basic objection to the restriction on ITC as imposed, in blatant disregard of constitutional propriety that enaials.
    2. Among others, as selected,- purporting to clarify / set at rest all ambiguities grieved about by the adversely impacted recipient of supply (-ies) , under the head of – “Further following issues has been clarified by the Circular” , is found listed the item that reads :
    “The restriction imposed shall not be calculated supplier wise but on total eligible credit from all suppliers against all supplies.”
    Point of personal reaction: Though no clarity, presumably that refers to claim for ITC by a single recipient of supplies from several suppliers; also, of both of goods and services ! – Any contrarian thoughts on the merits thereof ?
    courtesy

  3. SURYAKANTH says:

    Thanks for the comprehensive analysis of ITC after considering the notification 49/2019 dt. 09.10.2019 and the circular 123 dt. 11.11.2019.

    Kindly clarify that, whether 20% restriction also applies for the input tax credit document dated july 19 and availed the ITC during Oct 19.
    Can I avail ITC on this documents 100% or restrict to 20%. or
    I need to download the 2A relating to Jul 19 as well as Oct 19 to make sure that the document is reflecting the gst portal to avail the 100% ITC.

    Kindly clarify..

    1. vswami says:

      OFFHAND (apropos of Pr. Comment) :
      Perhaps, besides the rest concerned, practicing professionals, as a class, are as yet unsure whether ‘tolerance’ has bottomed to the zero level !
      Independently but differently viewed, one has been left wondering, all along, that after all, it is too early to affirm/ proclaim loudly, that the wheel of surrounding controversy (ies) has come one ‘full circle’; so as resort to ‘pro-activism’ (in its profound sense) ?!

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