RESTRICTION ON INPUT TAX CREDIT

[Mr. M. GOVINDARAJAN]

Vide the Goods and Services Tax (Sixth Amendment) Rules, 2019 issued through Notification No. 49/2019-Central Tax, dated 09.10.2019, the Central Government inserted a new sub rule (4) to Rule 36.  The new Rule 36(4) provides that 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% 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.

Therefore a taxpayer filing GSTR-3B can claim provisional ITC only to the extent of 20% of the eligible credit available, in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers in the GSTR-2A.

Vide Circular No. 123/42/2019-GST, dated 11.11.2019 the Board issued some clarifications on the restrictions put forth vide Rule 36(4).  Since this is a new provision, the restriction is not imposed through the common portal.   It is the responsibility of the taxpayer that credit is availed 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 tax payers.

The said circular also clarified some issues as detailed below-

• 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 section 37 (1) 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 section 37(1)  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.

• 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 Rule 36(4) 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 Section 17(5) would not be considered for calculating 20%  of the eligible credit available.

• 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 section 37(1)  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 section 37(1).

• 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 of section 37(1) ?

Rule 36(4) 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 section 37(1) 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 section 37(1).   The eligible ITC that can be availed is explained by way of illustrations, in a tabulated form, below-

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	Suppliers have furnished in FORM GSTR-1 80 invoices involving ITC of ₹ 6 lakhs as on the due date of furnishing of the details of outward supplies by the suppliers.	₹ 1,20,000/-	₹ 6,00,000 (i.e. amount of eligible ITC available, as per details uploaded by the suppliers) + ₹ 1,20,000 (i.e. 20% of amount of eligible ITC available, as per details uploaded by the suppliers) = ₹ 7,20,000/-
Case 2	Suppliers have furnished in FORM GSTR-1 80 invoices involving ITC of ₹ 7 lakhs as on the due date of furnishing of the details of outward supplies by the suppliers.	₹ 1,40,000/-	₹ 7,00,000 + Rs/ 1,40,000 = ₹ 8,40,000/-
Case 3	Suppliers have furnished in, 75 invoices having ITC of ₹ 8.5 lakhs as on the due date of furnishing of the details of outward supplies by the suppliers.	₹ 1,70,000/-	₹ 8,50,000/- + ₹ 1,50,000/-* = ₹ 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.

• 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 section 37(1)] remains under 20% 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 ₹ 8.3 lakhs (₹ 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 ₹ 2.8 lakhs in case suppliers upload details of some of the invoices for the tax period involving ITC of ₹ 2.3 lakhs out of invoices involving ITC of ₹ 4 lakhs details of which had not been uploaded by the suppliers. [₹ 6 lakhs + ₹ 2.3 lakhs = ₹ 8.3 lakhs]
• Case 2 – ‘R’ may avail balance ITC of ₹ 1.6 lakhs in case suppliers upload details of some of the invoices involving ITC of ₹ 1.3 lakhs out of outstanding invoices involving ₹ 3 lakhs. [₹ 7 lakhs + ₹ 1.3 lakhs = ₹ 8.3 lakhs].

On analysis, it was found that in FY 2018-19 the total differences in FORM GSTR-2A and GSTR-3B is 13% of total GSTR-2A, which led to approximately 13% of the total credit unmatched. The Council was apprised the difference of ITC in FORM GSTR-3B and FORM GSTR-2A in the Financial Year 2017-18 and 2018-19 as under-

(in crores)

Financial year	Total credit in Form 3B	Total Credit in Form 2A	Difference	Difference/2A in %
2017 - 18	882619.53	633098.53	249521.01	39%
2018 - 19	1478118.21	1307857.86	170260.35	13%

Source: www.gstcouncil.gov.in.

The Council recommended, in the interest of revenue and to increase the proportion of matched credit in the system, to amend Rule 36(4) of the CGST Rules, 2017 to increase restriction of ITC on missing invoices for any recipient to 10% from 20% of the total supplies received in his FORM GSTR- 2A from his suppliers, vide the Goods and Services Tax (ninth Amendment) Rules, 2019 vide Notification No. 75/2019-Central Tax, dated 26.12.2019, which came into effect from 26.12.2019.

The effect of 10% restriction on ITC has been illustrated through an example below:

		CGST	SGST	IGST
A	Total eligible ITC available during the period as per purchase register	500000	500000	500000
B	Total ITC appearing in GSTR-2A	400000	400000	450000
C	Ineligible ITC appearing in GSTR- 2A	25000	25000	10000
D	Net eligible ITC in GSTR-2A (B-C)	375000	375000	440000
E	10% of eligible ITC (10% of D)	37500	37500	44000
F	Maximum ITC which can be availed (D+E)	412500	412500	484000

Vide the Central Goods and Services Tax (Fourth Amendment) Rules, 2020, the Central Government inserted a new proviso to Rule 36(4).  According to this new proviso the condition stipulated in Rule 36(4) shall apply cumulatively for the period February, March, April, May, June, July and August, 2020 and the return in FORM GSTR-3B for the tax period September, 2020 shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition above.