[Ref: Notification No. 94/2020-Central Tax dated 22nd December, 2020]

We all are aware that recently, in exercise of the powers conferred by Section 164 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017), the Central Government, on the recommendations of the Council, has issued a Notification No. 94/2020-Central Tax dated 22nd December, 2020 to amend the Central Goods and Services Tax Rules, 2017 (“CGST Rules, 2017”) majorly with regard to the following-

1. GST registration can be cancelled or suspended under CGST Rules, 2017 21A at the discretion of the tax officer in certain cases;

2. Changes in Rule 36(4) of CGST Rules, 2017 from 1st January, 2021- recipients can claim provisional Input Tax Credit (“ITC”) in GSTR-3B to the extent of 5% instead of earlier 10% of the total ITC available in GSTR-2B for the month;

3. Certain taxpayers cannot make payment from their electronic credit ledger in excess of 99% of the total tax liability for the tax period.

4. Changes notified in e-way bills Rules regarding validity and blocking due to non-filing of GSTR-3B.

Now, we would like to discuss and deal herein only with regard to change in Rule 36(4) of CGST Act, Rules from 1st January, 2021. It is stated that a new provision as ‘Section 43A’ ‘regarding procedure for furnishing return and availing input tax credit’ was inserted vide CGST (Amendment) Act, 2018 (the ‘Amendment Act, 2018’). It is notable that Amendment Act, 2018 was notified w.e.f. 01.02.2019 by Notification No. 02/2019 – Central Tax dated 29th February 2019 but some sections [i.e. clause (b) of section 8, section 17, section 18, clause (a) of section 20, sub-clause (i) of clause (b) and sub-clause (i) of clause (c) of section 28] of the said amendment is to be notified yet. Section 18 of Amendment Act, 2018 talks about insertion of new Section 43A in CGST Act, 2017.

More important thing for which we would like to draw your kind attention herein is regarding sub-section (4) of Section 43A of the CGST Act,2017 that is-

*“43A(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.”

*Again, please note that the said provision was not yet been notified.

Later on, the Central Board of Indirect Taxes (“CBIC”) having power in Section 164 of the CGST Act, 2017, released a crucial Notification No. 49/2019 (Central Tax) dated 09th October, 2019 by which a new sub-rule (4) under Rule 36 of the CGST Rules, 2017, was inserted.

The Rule 36(4) in words of the law is-

“(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.”.

Rule 36 provides ‘documentary requirements and conditions for claiming input tax credit’ under Chapter V INPUT TAX CREDIT. Rule 36(4) restricts the credit relating to the invoices not uploaded by the suppliers in their form GSTR-1 to the extent of 20% (10% w.e.f.01.01.2020 vide Notification No. 75/2019 Central Tax dated 26th December, 2019 and 5% w.e.f. 01.01.2021 vide Notification No. 94/2020-Central Tax dated 22nd December, 2020). It provides that ITC can be here after claimed in the GSTR-3B only to the extent of 120% of eligible ITC reflected in GSTR-2A in aggregate.

Rule 36(4) is concerned with regard to restriction on the availment of ITC in cases where GSTR-1 has not been uploaded by the suppliers under sub-section (1) of section 37. It is important to note that this newly inserted rule is a substantive condition to be fulfilled for the availment of ITC in addition to conditions prescribed under Section 16 of CGST Act, 2017.

For instance: –

SN. Particular Amount (in Rs.)
a. Eligible ITC appearing in GSTR2A (on the basis of GSTR-1 filed by the counterparty) 100
b. Eligible ITC not appearing in GSTR2A (on the basis of not filed in GSTR-1 by the counterparty) 40
c. Total eligible ITC on inward supplies (a+b) 140
Maximum Permissible ITC in GSTR3B on self-assessment basis (a x 120%) 120

We know that prior to the introduction of the above notification entire eligible ITC of Rs 150 can be availed by the taxpayer in GSTR3B return. However, with effect from 9th October 2019 out of eligible ITC not appearing in GSTR2A of Rs 50, a sum of Rs 20 can only be claimed in GSTR3B of the current month. Remaining ITC of Rs 30 can be claimed in the subsequent months when the corresponding invoices are uploaded by the suppliers in GSTR1.

#Only for your reference please note that ITC once availed as per Section 16 (Rules thereto) is credited to Electronic Credit ledger of the registered person and can be utilized for payment towards output tax as provided in Section 49 of the CGST Act, 2017.

Rule 36(4) by Notification No. 94/2020-Central Tax dated 22nd December, 2020.

After the amendment in Rule 36(4) by Notification No. 94/2020-Central Tax dated 22nd December, 2020, it may be read as under-

“(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been furnished in Form GSTR-1 or using the invoice furnishing facility, shall not exceed 5 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been furnished in Form GSTR-1 or using the invoice furnishing facility.”.

Summarised Position before and after introduction of Rule 36(4) w.e.f. 09.10.2019 and with latest amendment vide Notification No. 94/2020-Central Tax dated 22nd December, 2020.

ITC Mechanism before introduction of Rule 36(4) (before 09.10.2019):-

SN. Particular Amount (in Rs.)
No. of invoices 100
a. Eligible ITC appearing in GSTR2A (on the basis of GSTR-1 filed by the counterparty) 1,00,000
b. Ineligible ITC 20,000
c. Eligible ITC not appearing in GSTR2A (on the basis of not filed in GSTR-1 by the counterparty) 5,000
d. Total eligible ITC on inward supplies (a+c) 1,05,000
Maximum Permissible ITC in GSTR3B on self-assessment basis (a +c%) i.e. d 1,05,000

ITC Mechanism after introduction of Rule 36(4) (i.e. w.e.f. 09.10.2019 to 31.12.2019):-

SN. Particular Amount (in Rs.)
No. of invoices 100
a. Eligible ITC appearing in GSTR2A (on the basis of GSTR-1 filed by the counterparty) 1,00,000
b. Ineligible ITC 20,000
c. Eligible ITC not appearing in GSTR2A (on the basis of not filed in GSTR-1 by the counterparty) 6,000
d. Total eligible ITC on inward supplies (a+c) 1,06,000
Maximum Permissible ITC in GSTR3B on self-assessment basis (a x 20%) i.e. Rs. 20,000 or Rs. 6,000 whichever is lower, therefore, Rs. 1,00,000 +Rs. 6,000 = Rs. 1,06,000 1,06,000

ITC Mechanism after introduction of Rule 36(4) (i.e. w.e.f. 01.01.2020 to 31.12.2020):-

SN. Particular Amount (in Rs.)
No. of invoices 100
a. Eligible ITC appearing in GSTR2A (on the basis of GSTR-1 filed by the counterparty) 1,00,000
b. Ineligible ITC 20,000
c. Eligible ITC not appearing in GSTR2A (on the basis of not filed in GSTR-1 by the counterparty) 6,000
d. Total eligible ITC on inward supplies (a+c) 1,06,000
Maximum Permissible ITC in GSTR3B on self-assessment basis (a x 10%) i.e. Rs. 10,000 or Rs. 6,000 whichever is lower, therefore, Rs. 1,00,000 +Rs. 6,000 = Rs. 1,06,000 1,06,000

ITC Mechanism after introduction of Rule 36(4) (i.e. w.e.f. 01.01.2021):-

SN. Particular Amount (in Rs.)
No. of invoices 100
a. Eligible ITC appearing in GSTR2A (on the basis of GSTR-1 filed by the counterparty) 1,00,000
b. Ineligible ITC 20,000
c. Eligible ITC not appearing in GSTR2A (on the basis of not filed in GSTR-1 by the counterparty) 6,000
d. Total eligible ITC on inward supplies (a+c) 1,06,000
Maximum Permissible ITC in GSTR3B on self-assessment basis (a x 10%) i.e. Rs. 5,000 or Rs. 6,000 whichever is lower, therefore, Rs. 1,00,000 +Rs. 5,000 = Rs. 1,05,000 1,05,000
ITC carried forward to the subsequent tax period subject to the requisite invoices uploaded by the suppler 1,000

Issues and Clarifications through Circular No.123/42/2019 GST dated 11th November, 2019.

Further, it also is necessary and important to talk about Circular No.123/42/2019 GST dated 11th November, 2019 issued by the Central Government, in exercise of its powers conferred under section 168(1) of the CGST Act, 2017 which clarify various issues to ensure uniformity in the implementation of the provisions of the law across the field formations. The important clarifications are as per the above circular are as under-

Self-assessment basis: This being a new provision, the restriction is not imposed through the common portal and it is the responsibility of the taxpayer that credit is a vailed in terms of the said rule and therefore, the availment of restricted credit in terms of sub-rule (4) of rule 36 of CGST Rules shall be done on self-assessment basis by the taxpayers.

Other various issues relating to implementation of the said sub-rule have been examined and the clarification on each of these points is as under: –

Sl No. Issue Clarification
1 What are the invoices / debit notes on which the restriction under rule 36(4) of the CGST Rules shall apply? The restriction of availment of ITC is imposed only in respect of those invoices / debit notes, details of which are required to be uploaded by the suppliers under sub-section (1) of section 37 and which have not been uploaded. Therefore, taxpayers may avail full ITC in respect of IGST paid on import, documents issued under RCM, credit received from ISD etc. which are outside the ambit of sub-section (1) of section 37, provided that eligibility conditions for availment of ITC are met in respect of the same. The restriction of 36(4) will be applicable only on the invoices / debit notes on which credit is availed after 09.10.2019.
2 Whether the said restriction is to be calculated supplier wise or on consolidated basis? The restriction imposed is not supplier wise. The credit available under sub-rule (4) of rule 36 is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers. Further, the calculation would be based on only those invoices which are otherwise eligible for ITC. Accordingly, those invoices on which ITC is not available under any of the provision (say under sub-section (5) of section 17) would not be considered for calculating 20 per cent. of the eligible credit available.
3 FORM GSTR-2A being a dynamic document, what would be the amount of input tax credit that is admissible to the taxpayers for a particular tax period in respect of invoices / debit notes whose details have not been uploaded by the suppliers? The amount of input tax credit in respect of the invoices / debit notes whose details have not been uploaded by the suppliers shall not exceed 20% of the eligible input tax credit available to the recipient in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37 as on the due date of filing of the returns in FORM GSTR-1 of the suppliers for the said tax period. The taxpayer may have to ascertain the same from his auto populated FORM GSTR 2A as available on the due date of filing of FORM GSTR-1 under sub-section (1) of section 37.
4 How much ITC a registered tax payer can avail in his FORM GSTR-3B in a month in case the details of some of the invoices have not been uploaded by the suppliers under sub-section (1) of section 37. Sub-rule (4) of rule 36 prescribes that the ITC to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37. The eligible ITC that can be availed is explained by way of illustrations, in a tabulated form, below.

In the illustrations, say 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.

  Details of suppliers’ 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
Case 1 Supplier have furnished in FORM GSTR-1 80 invoices involving ITC of Rs. 6 lakhs as on the due date of furnishing of the details of outward supplies by the suppliers. Rs. 1,20,000/- Rs. 6,00,000 (

i.e. amount of eligible, as per details uploaded by the suppliers) + Rs. 1,20,000 (i.e. 20% of amount of eligible ITC available, as per details uploaded by the suppliers) = Rs. 7,20,000/-

Case 2 Suppliers have furnished in FORM GSTR-1 80 invoices involving ITC of Rs. 7 lakhs as on the due date of furnishing of the details of outward supplies by the suppliers Rs. 1,40,000/- Rs. 7,00,000 + Rs. 1,40,000 = Rs. 8,40,000/-
Case 3 Suppliers have furnished in FORM GSTR-1 75 invoices involving ITC of Rs. 8.5 lakhs as on the due date of furnishing of the details of outward supplies by the suppliers Rs. 1,70,000/- Rs. 8,50,000/- + Rs. 1,50,000/-* = Rs. 10,00,000/-

* The additional amount of ITC availed shall be limited to ensure that the total ITC availed does not exceed the total eligible ITC.

 

5 When can balance ITC be claimed in case availment of ITC is restricted as per the provisions of rule 36(4)? The balance ITC may be claimed by the taxpayer in any of the succeeding months provided details of requisite invoices are uploaded by the suppliers. He can claim proportionate ITC as and when details of some invoices are uploaded by the suppliers provided that credit on invoices, the details of which are not uploaded (under sub-section (1) of section 37) remains under 20 per cent of the eligible input tax credit, the details of which are uploaded by the suppliers. Full ITC of balance amount may be availed, in present illustration by “R”, in case total ITC pertaining to invoices the details of which have been uploaded reaches Rs. 8.3 lakhs (Rs 10 lakhs /1.20). 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. The same is explained for Case No. 1 and 2 of the illustrations provided at Sl.No.3 above as under:

Case 1 “R” may avail balance ITC of Rs. 2.8 lakhs in case 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. [Rs. 6 lakhs + Rs. 2.3 lakhs = Rs. 8.3 lakhs]
Case 2 “R” may avail balance ITC of Rs. 1.6 lakhs in case suppliers upload details of some of the invoices involving ITC of Rs. 1.3 lakhs out of outstanding invoices involving Rs. 3 lakhs. [Rs. 7 lakhs + Rs. 1.3 lakhs = Rs. 8.3 lakhs]

 

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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