Practical aspects of availing credit in respect of invoices not appearing in Form GSTR 2A or GSTR 2B

[Shilpi Jain]

With effect from 9^th Oct ’19, the most controversial sub-rule 4 was added to rule 36 of the CGST Rules, 2017 which brought an additional condition of invoices required to be uploaded by the supplier in his Form GSTR-1 to enable the customer to take credit. The provision reads as below presently:

“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 5 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.”

There is a doubt in the mind of a lot of assesses whether the credit is to be reversed in case it is not appearing in their Form GSTR-2A or GSTR-2B and whether this has to be complied with from Jul ’17 onwards itself. There have been communications in this regard from the department, and in many cases the customers have approached the vendors asking them to pay back the GST amount charged in the invoice since the said invoice is not appearing in the customer’s Form GSTR-2A or GSTR-2B.

The paper writer feels that these kind of provisions in the law has 2 aspects – one is the legal aspect i.e. whether the provision is legally valid to stand the scrutiny of the Courts and the other aspect is practicality i.e. a large proportion of the assesses are those who do not want to dispute with the department as it takes a lot of time and money. Also, in some cases the amount is not huge that it is worth spending the time and money in litigation. Hence, without getting into the legal validity and practical challenges in complying with this rule, we would be looking at the practical way out in respect of the department’s demand from assesses in respect of non-compliance of this rule.

Scenario before 9^th Oct ’19

Requirement of disclosure in Form GSTR-1 by the supplier

It has been seen that even though the rule was inserted from 9^th Oct ’19, the department has been issuing communications to the assesses to reverse credit which has been availed even before this date where the invoices are not disclosed by the supplier in his Form GSTR-1. In this regard, it is to be noted that the requirement of complying with rule 36(4) did not exist from Jul ’17 as is also evident from the clarification No. 1 of circular 123/2019-CGST dated 11^th Nov ’19 as below:

The restriction of 36(4) will be applicable only on the invoices / debit notes on which credit is availed after 09.10.2019.

This clearly brings out that at the minimum the invoices / debit notes in respect of which credit is availed before 9^th Oct ’19 would not be required to be reversed even if these are not disclosed by the supplier in his Form GSTR-1. Also, it is a settled principle of law that the circulars are binding on the department as was held by the Supreme Court in the case of Ratan Melting & Wire Industries. Hence, the department is not supposed to ask the taxpayers to reverse credit just because the supplier invoices are not appearing in Form GSTR 2A or GSTR 2B for the period before 9^th Oct ‘19.

There are various other grounds on which the provision of rule 36(4) can be challenged and in fact there are several Writs pending in the High Court in the respect. Though, this article is not examining those aspects as the objective of this article is to give some practical way of tackling with the department queries first-hand.

Requirement of payment of taxes by the supplier

However, one must note that as per section 16(2)(c) of the CGST Act, 2017 there is also a requirement for the supplier to pay GST taxes to the Government to enable the customer to take credit. The provision reads as below:

(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply;

From this provision it can be noted that there is no time limit mentioned for the payment of this tax by the supplier i.e. the supplier can pay the taxes even after say 2 years, it will still be considered as satisfaction of the said provision. Another point is, it can also be argued that this provision stipulates a condition which is not possible to fulfil since it is next to impossible for the customer to find out whether the supplier has paid the taxes, since even if the supplier has filed his GSTR 3B for the said period it would be difficult to ascertain whether the tax paid in such Form GSTR 3B includes the tax on the supply received by the customer.

Thereby, it can be said that the customer is not required to fulfil the condition that the supplier should pay the taxes in respect of which credit is taken, since the law does not compel anyone to do what is impossible as was held in the case of INDIAN SEAMLESS STEEL AND ALLOYS LTD. VERSUS UNION OF INDIA [2002 (12) TMI 597 - BOMBAY HIGH COURT]. Hence, the non-payment of taxes by the supplier should not affect the credit in the hands of the customer.

Proving compliance to the department

However, in a scenario where the supplier has actually paid the taxes (even if paid late) but has failed to disclose it in Form GSTR-1 (could be for any reason) the customer can look at the option of getting a declaration from the supplier that the taxes have been paid in respect of the invoices issued to the customers. Even better could be to get a certification from a Chartered Accountant certifying that taxes on the list of invoices issued to the customer have been paid to the Government. This will have to be accepted by the department unless the department is able to prove to the contrary, as was held in the case of U.O.I. VERSUS MANGAL TEXTILE MILLS PVT. LTD. [2003 (2) TMI 544 - SC ORDER]. This can then be considered as a satisfaction of the condition u/s 16(2)(c) ibid.

Thus, for the period before 9^th Oct ’19, there is no requirement that the details of the invoice in respect of which the credit is taken should appear in Form GSTR 2A based on the circular 123 mentioned above. Also, it is suggested to take a declaration or certification from the supplier or his CA that the taxes have been paid in respect of the supply received by the customer on which credit is availed.

Scenario from 9^th Oct ‘19

Requirement of disclosure in Form GSTR-1 by the supplier

Assuming rule 36(4) is valid we will proceed this discussion. An important aspect to note in this provision is that there is a requirement that the supplier should disclose the supplies in his Form GSTR 1 to enable the customer to take credit. It is not mentioned in the said provision that the customer should be able to see the entries of those invoices in his Form GSTR 2A or GSTR 2B.

Further, as per the first proviso to section 37(3) of the Act a time limit has been specified after which no rectification of any error or omission in any details furnished in Form GSTR 1 would be allowed. The provision is extracted below:

Provided that no rectification of error or omission in respect of the details furnished under sub-section (1) shall be allowed after furnishing of the return under section 39 for the month of September following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier.

Thus, there is no time limit in the law for declaring any supply which has been missed to be disclosed in Form GSTR 1 by the supplier i.e. if any invoice of FY 2019-20 has been missed to be disclosed in Form GSTR-1 by the supplier, it can be disclosed anytime and there is no time limit for such disclosure. The time limit in the above provision is only in respect of amending any details which have already been disclosed in Form GSTR-1 by the supplier. Hence, mere disclosure by the supplier in his Form GSTR-1 would be sufficient compliance of the provision of rule 36(4) even if it is disclosed after the date mentioned in section 37(3) ibid since such provision is not applicable to disclosure of the invoices that were completely missed to be disclosed earlier.

In this backdrop, it has been noted that due to a few of the following reasons the details of the invoices on which credit has been availed are not appearing in Form GSTR2A or GSTR 2B even though disclosed by the supplier in his Form GSTR-1:

1. B2B invoice has been disclosed by the supplier as a B2C supply in his Form GSTR-1.
2. The above wrong disclosure is subsequently corrected by the supplier, say invoice of Jan ’20 is rectified after the Sep ’20 GSTR 3B is filed, due to which in Form GSTR 2B of the customer such invoice is shown as a credit which is not eligible (since the amendment is done after the time limit mentioned in section 37 ibid).
3. The supplier discloses an invoice of FY 2019-20 in the Form GSTR-1 which is filed after the Sep ’20 GSTR 3B is filed. This invoice is shown as ineligible credit in Form GSTR-2B of the customer.

In case of a) and b) above, it is suggested that a declaration or certification is taken from the supplier or his CA that the details of the invoices in respect of which credit is availed by the customer have been disclosed in Form GSTR-1 of the supplier though in the wrong table. This should be sufficient compliance with the existing provision of rule 36(4).

In case of scenario c) above, since there is no time limit stipulated in the law for disclosure of supplies in Form GSTR-1, appearance in Form GSTR-2B as an ineligible credit should not disentitle credit in the hands of the customer.

Requirement of payment of taxes by the supplier

The discussion in this article in this regard for the period before 9^th Oct ’19 would be equally applicable for this period as well.

Proving compliance to the department

However, to avoid any intervention from the department w.r.t. differences between Form GSTR 2A or GSTR 2B with the credit taken in Form GSTR 3B, it is time that the trade and industry checks the compliance of its suppliers. Though, in many cases the volume of the suppliers is so huge that it is not practically possible to do the same.

In such cases, the following few points can be considered in this regard:

1. Wherever feasible, clauses can be included in the PO issued or the agreement with the supplier that payment will be made only on invoice details appearing in Form GSTR 2B of the customer and a declaration from the supplier that GST has been paid.
2. Segregating vendors into category A, B and C considering their compliance with return filing under GST and the rate at which their invoices appear in Form GSTR 2A or 2B. This can be seen from the ‘Search Taxpayer’ section in the GST portal. This categorisation can be done on other aspects relating to the vendor i.e. industry in which the vendor does business, the nature of person i.e. whether a company or proprietor or partnership, etc.
3. Including an additional check in the invoices sent for payment approval to see if the same has been disclosed in Form GSTR 2B.
4. Representation can be made to the Government that instead of restricting credit in the hands of the customers, the Government should get, from the customers, the complete details of the supplies not appearing in Form GSTR-2A or 2B of the customer and send notices to such suppliers for recovery. Legal provisions in this respect should be incorporated in the law mandating sharing of such information by the customers to the department.

The views mentioned in this article are strictly personal and cannot be considered as a legal view or accepted solution. For any queries or feedback please write to shilpijain@hiregange.com

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CA Shilpi Jain

Apr ‘21