ITC Reversals in GSTR3B, Goods and Services Tax - GST

[Prem Gomathy]

This is the case of a hospital clinic filing under QRMP scheme. While filing GSTR-3B, the Gross input tax credit comes from GSTR-2B.

Credit which cannot be taken has to be reversed. We have 2 options to reverse credit. First option is to reverse u/s 42 and 43. Another option is to reverse under "Other Reversals"

So the questions are:

i) There are input goods/services that are fully used to supply exempt services. Under which of the 2 options above is such ITC to be reversed.

ii) What reversal is to be shown in "Other Reversals?"

iii) Whether instead of considering reversals,we need to consider such credits are ineligible credits?

Posts / Replies

[KASTURI SETHI]

Sh.Prem Gomathy Ji,

You are required to reverse credit in Table No.4 against D(2) Others of GSTR 3B. It is ineligible credit.

[Prem Gomathy]

Dear Kasturi Sir,

If that's the case, we might have to show net credit in 4A(5). This would mean that we ignore the Gross Credit that comes from GSTR 2B in 4A(5) and replace that with the net credit.

This is because net credit would always be 4A-4B.

Another contradiction will be that Rule 42 and Rule 43(4B1)covers the credits pertain to inputs on purchases used for providing exempt and taxable services (Common Credit). If we follow the method of reversing only in 4D92), we have to leave both 4B(1) and 4B(2) as empty. Wont this be an issue.

[KASTURI SETHI]

All these are procedural matters. Govt. is concerned with reversal. If you reverse under Table 4 (B) (2), nothing serious is going to happen. Main concern is that there should be no revenue loss to Govt.ITC must be as per Sections 16 and 17. Act is to be preferred to Rules. 2A, 2B, 3B are under Rules. You are to go by the Act, if Rules or common portal is not in consonance with the Act.

[ABHISHEK TRIPATHI]

Dear Sir,

It may sound silly, but I have a doubt.

Which provision bars ITC for exempt supplies? For instance, my all my inputs are used for supply exempted goods, in such a situation, statutorily how I will be ineligible for ITC?

Section 17(2) is for common credit situation; my doubt pertains to a situation in which you're solely using your inputs for exempted supplies

[KASTURI SETHI]

SH.- ABHISHEK TRIPATHI JI,

Sir, Should the querist not reverse as ineligible credit ? Pl. quench my thirst.

[ABHISHEK TRIPATHI]

Dear KS Sir,

Basic understanding of indirect tax, the querist should reverse ITC on exempted supplies. But, my view may sound absurd, see S. 17(2) it ask for the reversal of common credit. In case when the querist is solely supply exempted goods then whether S. 17(2) will be applicable? S. 17(2) is reversal for common credit not sole credit on exempted supply.

The above view is not asking the querist not to reverse, in common parlance everyone is reversing [More apt is Rule 43 for reversal]. However, let us wait for a second and understand that under what provision we are reversing? I dont think 17(2) is the answer.

[Prem Gomathy]

Dear Abhishek sir,

That again is my first question. Where to reverse the inputs fully used to supply exempt services. As per talk with officials and the industry practice is to reverse. But there is no consensus as to where to show the reversal..

If it is to be done as per KS Sirs point, only net credit is to be shown in Table 4A(5) , thereby ignoring the gross credit accumulating therein automatically through GSTR-2B. And the difference is to be shown in 4D(2).

But such is not the industry practice. Industry practice is to reverse the credit that cannot be taken in 4B(1) or 4B(2).

In 4B(1), the common credits are considered(Inputs for supply of exempt and taxable outward supplies). If for example, out of ₹ 100 total common credit, only 40 is eligible, the common credit that cannot be taken.. that is 60 is reversed in 4B(1).

But what is to be reversed in 4B(2)? Is it Input exclusively used for providing exempt output? (As partial exempt and partial taxable are already reversed in 4B(2).

Table 4A-4B of GSTR-3B gives the net credit available for utilization.

Thanks

[OPTIMIST TAXMAN]

I HAVE A QUERY WHEN TRAN-1 CREDIT IS REVERSED UNDER GST, WOULD THAT REVERSED CREDIT BE ELIGIBLE FOR REFUND UNDER ERSTWHILE VAT ACT? WHILE SECOND PROVISO OF SECTION 142(3) EXPLICITLY BARS IT:

(3) Every claim for refund filed by any person before, on or after the appointed day, for refund of any amount of CENVAT credit, duty, tax, interest or any other amount paid under the existing law, shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944:

Provided that where any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse:

Provided further that no refund shall be allowed of any amount of CENVAT credit where the balance of the said amount as on the appointed day has been carried forward under this Act.

BUT THE SAID PROVISO DOES NOT TALK ABOUT REVERSAL OF TRAN-1 MADE. IS THERE ANY SOLUTION TO THIS ISSUE?

[Ganeshan Kalyani]

I fully agree with the views of Sri Kasturi Sir.

The Govt. should issue a classificatory circular specifying the data that should be furnished by the taxpayer in relevant table of the returns. In absence of such clarity the taxpayer is free to chose the method keeping the Act, Rule in mind. Ultimately the taxpayer should claim eligible ITC only.

[Punit Agarwal]

In my view and as stated in Rule 42(1)(h) common credit will be "Input tax credit left after attribution of ITC under Clause (g)

Clause (g) states Total Input - (T1+T2+T3+T4) = Common Credit

T1 = ITC used for purpose other than Business

T2 = ITC for Exempt Supply

T3= ITC not available as restricted under 17(5)

T4=ITC Fully eligible to be claimed

Also in clause (e) it is specifically stated that the ITC credited to electronic credit ledger of the registered person be denoted by

C1 which is Total Input -(T1+T2+T3)

So ITC used for exclusively Exempt supply should not be a part of All other ITC in GSTR-3B 4A(5) as it is not to be a part of Electronic credit Ledger.

[KASTURI SETHI]

If a registered person takes ITC against fully exempted supply due to oversight, such credit has to be reversed from ECL, it being ineligible.

[ABHISHEK TRIPATHI]

Dear Prem Gomathy Ji,

1. First Method - Its not reversal, its bifurcation of eligible and ineligible credits. Issue with this is that 4A,B,C are one set [Eligible Credit] and 4D is another [Ineligible Credit]. This set is definitely made for common credits. You should not ignore the gross credit from 2B. That gross credit is there because eventually you deduct the common credit used and reach to Net Credit (i.e., 4C-Net Credit). This is very complicated way, will suggest to avoid.

2. Second Method - It is actual reversal {as industry is opting} - you should opt for this.

4B(2), possible for totally exempted supplies, may be who knows? Either God or Draftsman.

Best thing is to put the situation in front of your jurisdictional authority. Tell him, in both the situation there is no revenue loss to the department. And second situation makes more sense, hence, its on the authority to tell you which one to opt.