Reconciliation of ITC as per Notification no. 49/2019 – A New Compliance

[Anuj Bansal]

Reconciliation of ITC as per Notification no. 49/2019 – A New Compliance

In order to prepare column 8 of GSTR-9, a reconciliation is required to be done of credit available in GSTR-2A with the credits available in books on accounts. Practically such reconciliation is required to be done only once in a year i.e. after the end of financial year. Now, do you feel that the said reconciliation is the same to the reconciliation which is notified through insertion of Rule 36(4) of The CGST Rules vide Notification no. 49/2019, which limits the ITC i.e. eligible ITC and upto additional 20% of the Eligible ITC. In regards to same, I am of the view that newly introduced reconciliation is different than the reconciliation required earlier. The same is for the reason, that earlier we were reconciling the GSTR-2A data with books for determining column 8 of GSTR-9 values. Such reconciliation was not requiring specifically to reconcile the invoices available in books of accounts but not in GSTR-2A. However, vide above notification every month reconciliation is required to done for the invoices which are available in books of accounts but not reflecting in GSTR-2A. Same has added a new compliance and eventually an additional efforts. In this article, I tried to explain the above notification and the complexities which may arise in reconciling the details.

As stated above, vide the recent Notification no. 49/2019 dated 9th Oct, 2019, a change has been made in Rule No. 36 of the CGST Rules, 2017 after inserting a new Sub Rule i.e. Sub-rule 4 to Rule 36. The same read as under:

Sub-Rule 4 to Rule 36 of the CGST Rule, 2017

“(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.”

As per above notification, the available ITC is limited to the following:-

1. Eligible ITC i.e. the credit which has been matched with GSTR-2A, and
2. 20% of Point (1) or Un-matched credit with GSTR-2A, whichever is lower.

Accordingly, reconciliation is required to be done every month between 11^th of the following month (i.e. date of filling GSTR-1 by the Suppliers) to 20^th of the following month (i.e. date of filling GSTR-3B), which is cumbersome activity and requires a dedicated efforts to determine the available ITC.

The above is explained hereby with the help of an example:-

S.No.	Particulars	Before Notf. 49/2019	After Notf. 49/2019	After Notf. 49/2019
			Example 1	Example 2
		Amount (Rs.)	Amount (Rs.)	Amount (Rs.)
A	Eligible ITC available in Books	1,00,000	1,00,000	1,00,000
B	Eligible ITC available in GSTR-2A (ITC Matched with GSTR-2A)	70,000	70,000	85,000
C=A-B	ITC not available in GSTR-2A	30,000	30,000	15,000
D	20% of Eligible ITC	NIL	14,000	17,000
E	Mis-matched ITC which could be claimed in GSTR-3B	30,000	14,000 (Lower of C & D)	15,000 (Lower of C & D)
F	Total ITC Available in GSTR-3B	1,00,000	84,000	1,00,000

Going through the above examples, it seems that the computation would be easy. But practically when you try to apply above method in a computation involving numerous transaction entries of ITC, it would rather be impossible to determine the correct value. The said view is expressed for the following reasons.

1. Overlapping of Invoices in the books in the different months. Suppose an invoice has been reported by the vendor in its GSTR-1 in the month of Nov, 2019 (Reflecting in GSTR-2A in the month of Nov, 2019) whereas the same is considered in our books in March, 2020. In such situations all the invoices booked in a particular month are required to be reconciled with GSTR-2A of the earlier months in order to qualify the ITC as eligible credit.  So every month such kind of activity is required to be done.
2. In example (1) in the above table, provisional ITC is claimed at 20% of ₹ 14,000 and final ITC would be taken when invoice would be matched with GSTR-2A. The method for computing the same is explained hereby with the help of following situations :-

Situations	No. of Invoices mis-match	Amount of  mis-match	Invoices No. matched in subsequent months	Invoice Amount of matched invoices in subsequent month	Provisional Credit taken	Balance un-matched	Final Credit to be taken in subsequent month	Remarks
1	20	30000	15	18000	14000	-	4000	Since, 14,000 was taken earlier, therefore, balance of ₹ 4000 will be available as credit
2	20	30000	8	12000	14000	-	-	Since, 14,000 has already been taken, therefore no additional credit will be taken.

In the above situations, it may be observed that in every month, reconciliation of provisional credits taken in earlier months is required to be done. But things will not settled here, as mis-match credit in a month may get matched in various different months and accordingly, provisional credit is required to updated/ reconciled for every earlier months.

3. On perusing the provisions, we also observed that the law is silent on the issue of mis-match in the value or on the amendment of GSTR-2A values subsequently. As per newly inserted Rule 36(4), ITC relating to invoices for which details of the invoices are uploaded by the suppliers, is required to be considered as available / admissible. However, the above provision is not discussing anything about mis-match in the value. Therefore, in a situation where the GSTR-2A value in an invoice is lower than value of that invoice in books, then what would be the value for eligible credit or does it mean that we are not eligible to take such credit, as the department may consider the same as mis-match. In regard to same, a view may be taken that since Rule 36(4) only requires that details must have been uploaded by the vendor and said rule is not discussing anything about the mis-match of the details, therefore, ITC shall be allowed as per books even in case of mis-match in the details.
4. The other important issue is that under GST law, certain kind of dealers are permitted to file quarterly GSTR-1 return. Accordingly, such vendors would be filling GSTR-1 quarterly and their credit will only be reflecting in GSTR-2A after the end of quarter. In such situations, how the monthly reconciliation will be done and how the deemed credit will be determined.

In the light of above discussion, it would have been observed that following the new provision and determining the ITC as per such provision would be a complicated process and not feasible for a dealer having numerous transactions. The government must re-visit the above provisions and issue clarification in order to make it doable. It may also be added that the government is already in process of introducing new returns, where they are intending to have a close check on admissibility/ eligibility of ITC and having similar kind of provisions. Therefore, it was not be appropriate to introduce such kind of complicated provision at this stage.