Input Tax Credit (ITC) – New Year – New Method

[Ganeshan Kalyani]

In the New Year, we are required to deal with a compliant tax payer because the new provision added in the conditions to claim input tax credit section requires that our supplier should be a GST compliant and he should not miss the due date of filing his returns so that as a recipient we can claim input tax credit.

The new provision in clause (aa) inserted in Sec. 16(2) of CGST Act, 2017 prescribes two conditions as given below:-

1. the details of invoice or debit note has been furnished by the supplier in his GSTR-1/IFF
2. and such details have been communicated to the recipient of such invoice or debit note

For quick reading of the new clause, the same is reproduced below:

“(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37”

The above clause was previously inserted in Sec.16(2) in 28.03.2021 vide Finance Act, 2021 (13 of 2021), however, the date of effect of the clause was not notified at that time. By this way the Govt. had conveyed its intent of allowing the claim of input tax credit to the recipient only upon fulfillment of aforesaid conditions in clause (aa). However, the recipient was left to keep his finger crossed till the date of effect to the clause (aa) was notified. After many months, but before the year end CBIC has published a Notification No.39/2021-Central Tax and notified the date of effect of clause (aa) as 01.01.2022.

This is a very big change in the input tax credit claim condition as it requires him the recipient  to ensure with effect from 01.01.2022 that his supplier furnishes the details of invoice or debit in his GSTR-1 (condition 1). Also he has to ensure that the supplier communicates the details of invoice or debit note to him (condition 2).

The manner of communication of invoice or debit note by the supplier to recipient (condition 2) was still open for debate as the communication to recipient can be made by way of GSTR-2A as well as by GSTR-2B. And no doubt the recipient would prefer GSTR-2A as it is more favorable as compared to GSTR-2B to claim input tax credit.

GSTR-2A is a dynamic report which populates the invoice or debit uploaded by the supplier even after the due date of filing GSTR-1/IFF. So, the recipient would take the download of GSTR-2A report just one or two days before the due date of filing GSTR-3B so as to avail maximum eligible input tax credit.

Unfortunately on 29.12.2021 the aforesaid options available with the recipient has been taken away by CBIC vide Notification no.40/2021-Central Tax dated 29.12.2021 by substituting rule 36(4) of CGST Rules, 2017. As per this substituted rule the recipient has to consider GSTR-2B to fulfill condition no.2 i.e. to ensure the details of invoice or debit note uploaded by the supplier is communicated to recipient in GSTR-2B so as to claim input tax credit.

The above change is a big change for the recipient as GSTR-2B does not populates the details of invoice or debit note uploaded by his supplier after the due date of filing GSTR-1/IFF. The invoices or debit note uploaded by the supplier after the due date will be populated in next month’s GSTR-2B. So the recipient will have to wait for one month to claim the input tax credit on those missed invoice or debit note.

The above change also makes the recipient depend on his supplier’s compliance. Even though the recipient has paid the value of supply plus GST to his supplier for inward supply he cannot claim the input tax credit of the tax so paid unless his supplier upload the invoices in GSTR-1 within due date. 

The above conditions may bring following change:

1. A recipient will now act as a Govt. and ensure the supplier files the return
2. A recipient may not deal with a supplier who is not a GST compliant.
3. A recipient may insert a clause in his agreement enter into with supplier for timely GST compliance.
4. A recipient may withhold tax component from the amount payable to supplier if the invoice on which input tax credit to be claimed is not appearing in GSTR-2B 
5. Regular reconciliation of GSTR-2B with books needs to be done and for that a dedicated person especially for the taxpayers having huge transactions is required.
6. Automation in Accounting package (Tally, SAP etc.) is required for auto-reconciliation
7. Any other action which is necessary to ensure that no input tax credit is lost

So let us –

1. start following Sec. 16(2)(aa) from 01.01.2022.
2. start reconciling GSTR-2B with book input tax credit before we claim input tax credit.
3. start communicating with supplier for missed invoice or debit note

as with New Year - New Method for claim of Input Tax Credit has been prescribed.