Concept of seamless input tax credit is considered as the foundation of implementing the Goods and Services Tax enacted in 2017 generally known as CGST Act, SGST Act & IGST Act. This concept of seamless ITC has been compromised at various instances in the law it-self and also at the adjudication level. In This Article, we will attempt to analyse the intricacies and impact of recent amendment in the Rule 37 of the CGST Rules 2017 vide Notification no. 19/2022 CT dated 28.09.2022, further also try to understand whether this amendment may be considered as an attempt to compromise the concept of seamless ITC to some extent.
Analysis of Second Proviso to S. 16(2), S. 50, R. 37 & R.88B:
According to the GST law, ITC charged on any inward supply of goods and services or both can be availed by the taxpayers subject to conditions prescribed in Section 16(2) of the CGST Act, 2017. Further, according to the second proviso to sub-section (2) of Section 16, one of the conditions for availing ITC is that the buyer must have paid the value of supply along with the tax payable to the supplier within a period of 180 days from the date of issue of invoice by supplier. As per the said proviso, it is very important to note that in a case where recipient of services or goods fails to pay the value of supply with tax within the specified time limit of 180 days, he would not be eligible to availed the ITC till the payment to supplier of goods and services has been made.
The second proviso to section 16(2) is reproduced for ready reference:
“Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed”
As per the pre amendment provisions of sub-rule (3) of Rule 37, when the event mentioned in the second proviso to section 16(2) occurs i.e. non-payment of consideration within 180 days, the taxpayer/ buyer of goods or services or both shall be liable to pay interest from the date of availment of ITC till the date of its reversal. The said rule before the amendment is reproduced for ready reference –
Rule 37. Reversal of input tax credit in the case of non-payment of consideration.
(1) A registered person, who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof, the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to sub-section (2) of section 16, shall furnish the details of such supply, the amount of value not paid and the amount of input tax credit availed of proportionate to such amount not paid to the supplier in FORM GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice:
Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.
Provided further that the value of supplies on account of any amount added in accordance with the provisions of clause (b) of sub-section (2) of section 15 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.
(2) The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax liability of the registered person for the month in which the details are furnished.
(3) The registered person shall be liable to pay interest at the rate notified under sub section (1) of section 50 for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability, as mentioned in sub-rule (2), is paid.
(4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier.
CBIC has amended the said Rule 37 vide Notification No. 19/2022-CT dated 28.09.2022, whereby sub-rule (1) and (2) have been substituted and sub-rule (3) has been omitted. Post amendment rule 37 has been reproduced below for ready reference–
Rule 37.
(1) A registered person, who has availed of input tax credit on any inward supply of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, but fails to pay to the supplier thereof, the amount towards the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to sub-section(2) of section 16, shall pay an amount equal to the input tax credit availed in respect of such supply along with interest payable thereon under section 50, while furnishing the return in FORM GSTR-3B for the tax period immediately following the period of one hundred and eighty days from the date of the issue of the invoice
Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16
Provided further that the value of supplies on account of any amount added in accordance with the provisions of clause (b) of sub-section (2) of section 15 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.
(2) Where the said registered person subsequently makes the payment of the amount towards the value of such supply along with tax payable thereon to the supplier thereof, he shall be entitled to re avail the input tax credit referred to in sub-rule (1).
(3) Omitted
(4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier.
It may be understood from the new sub-rule (1) reproduced above, that unlike the old provision, the period for which interest payable is not specifically mentioned in the rule, but reference has been made to Section 50 of the Act. Hereby. it is important to note that the manner of calculating interest on delayed payment of tax has been provided in the Rule 88 of the CGST Rules. As per Rule 88B (3), the liability to pay interest would arise only when the ITC has been utilised. Provision of Section 50 read with Rule 88B (3) clearly provide that interest for the wrongly availed and utilised ITC shall be calculated for period starting from date of utilisation of the wrongly availed ITC to date of reversal of such ITC. Provisions of Rule 88B(3) has been reproduced below for ready reference–
“(3) In case, where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with sub-section (3) of section 50, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub-section (3) of section 50.
It is pertinent to mention that to analyse the interest liability to be reckoned from the application of Rule 37, provision of section 50 along with rule 88B has to be read together.
Conclusion: after discussion and analysis of the provision of CGST Act and rules made thereunder in the above portion of this article, significant impact of amendment in rule 37 may be summarized in the following points
i. prior to amendment, sub-rule (1) clearly provided that taxpayer is liable to reverse the proportionate ITC attributable to the portion of the value, which has not been paid within 180 days. However, amended Rule 37 (1) is silent about whether the taxpayer is liable to reverse the entire or proportionate ITC, in cases where only part of the invoice value is not paid within 180 days. Hence, now there are very good chances that in the absence of such clear stipulation in the amended rule, the authorities may demand reversal of entire ITC by applying this rule, even if the insignificant part of the invoice value has not been paid within 180 days.
ii. As per pre amended rule 37 (3) interest was payable by the taxpayer as the provision of section 50(1) of the CGST Act whereas now only reference to section 50 has been mentioned in the post amended rule 3 (1). Further, Post amendment it would be interesting to see whether authorities consider the interest @ 18% under section 50(1) or @24% under section 50(3) of the CGST Act.
iii. It is important to mention that as per explanation I to rule 88B if taxpayer have sufficient balance of ITC in Electronic Credit Ledger to reverse the ITC due to non-payment of consideration within 180 days, then no interest liability would arise. However, sufficiency of the balance in electronic credit ledger shall be reckoned from the date of ITC claimed.
iv. As per the amended sub-rule (1) of Rule 37, the reversal shall be made in the GSTR-3B return for the tax period, following the period of 180 days. But the taxpayer is not prevented to reverse the same in the GSTR-3B return of the same period in which taxpayer anticipate reversing the ITC due to non-payment in 180 days so that the interest liability could be reduced further.
v. Further, more clarification is sought from CBIC in the light of the recent amendments.
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