Introduction Gst Input tax Credit rules
In order to curb the problem of fake trading in GST, preparation of fake invoices, and misappropriation of ITC, CBIC has amended the GST provisions by inserting a new rule. The newly inserted Rule 36 (4) states that a taxpayer can avail ITC from an external supplier not declared by his supplier in Form GSTR-1, only the eligible loan available in respect of invoices declared by his supplier To the extent of 20%. Form GSTR-1 as reflected in Form GSTR-2A.
Issues related to Rule 36(4)
This rule was inserted from 9-10-2019, but there was a lot of confusion among taxpayers regarding its practical effect, whether any functionality would be provided on the GST portal, how 20% ITC would be calculated, ITC How will the balance be availed, what will be the treatment of ITC in the case of taxpayers, whose suppliers file quarterly returns, etc.?
Clearance through Circular : Regarding the implementation of the rule 36/(4): Notification 123/42/2019 by central tax department dated 11/11/2019: as per this notification
1) Ban is not imposed through the GST portal : It has been clarified that ITC is not yet banned through the Common Portal and it is the responsibility of the taxpayer to ensure that the credit is availed as per the said rule. Therefore, the benefit of restricted credit is required in terms of Rule 36 (4) on the basis of self-assessment by taxpayers.
2) Date of the application of Rule 36(4) : This circular states that the restriction of Rule 36 (4) will apply to those challan/debit notes on which credit will be taken after 09-10-2019. Accordingly, ITC received by 09-10-2019 will remain unaffected by the restriction of this new rule.
3) Invoices not under the ambit of Rule 36(4) : This restriction of ITC has been applicable only on challans or debit notes, which require all information to be uploaded by the suppliers in the form GSTR-1 and taxpayers can avail full ITC of the challans to the merchants There is no need to report in STR-1 such as payment on IGST import, documents issued under RCM, credit received from ISD, etc.
4) Calculation of credit on a consolidated basis : The credit available as per Rule 36 (4) is linked to the total eligible credit from all the suppliers whose details have been uploaded by the suppliers in Form GSTR-1 and which are reflected in Form GSTR-2A. Therefore, the loan restriction is not supplier-wise and is on a consolidated basis.
5) Cut-off date for calculation of ITC under Gst Act : The taxpayer needs to locate the ITC from the auto-populated Form GSTR 2A available on the due date of filing Form-GSTR-1, which is the 11th of the succeeding month for monthly return file holders and the last day of the month of the quarter of The return is for filing.
6) Calculation of ITC as per Rule 36(4) Under Gst Act : The calculation of 20% limit of the qualified credit available in the Form GSTR-2A for the invoices not uploaded by the supplier in the Form GSTR-1 can be understood With the help of an example we will understand, where a registered person receives A 'for Rs. 10 invoices are received for the inward supply of ITC. 1 lakhs during the month of October 2019. Suppliers have furnished only 6 invoices involving ITC of Rs. 60 thousand in Form GSTR-1 (reflected in GSTR-2A).
As per Rule 36 (4), the qualified ITC is to be taken in GSTR-3B with reference to the challan details filed by ITC on 20 November 2019 = 20% of the eligible ITC in GSTR-2A. Not equipped with challan in Form GSTR-1)
= Rs. 6,00,00 + 20% Rs. 6,00,00
= Rs. 7,20,00
7) Take benefit of balance ITC : As per GST rules, it can claim the remaining Input tax credit in any month, provided that the required challan details are required to be uploaded by the suppliers. In simple terms, the taxpayers can benefit full ITC in relation to the tax period throughout the period, when invoices are uploaded by suppliers to the extent of eligible ITC / 1.2.
For instance, in the above example, if the suppliers of ‘A’ upload the details of balance 40 invoices in the upcoming month, i.e., November’s month GSTR-1 involving ITC of Rs. 4 lakhs, after ‘A’ may avail balance ITC of Rs. 2.8 lakhs (Rs. 10 lakhs –Rs. 7.2 lakhs). However, the supplier may file a claim balance ITC of Rs. 2.8 lakhs even if suppliers of ‘A’ upload the details of balance invoices to the limit of Rs. 2.3 lakhs ITC.
Issues not clarified
This circular has failed to address the circumstance where suppliers have to choose for quarterly filing of GSTR-1 while the recipient files monthly GSTR-1. This will create trouble for the small taxpayers as recipients would try to obtained supplies from the dealers who opt for monthly filing of GSTR-1.
Impact of 20% Rule
The truss imposed in Rule 36(4) will certainly impact the working capital of taxpayers as they have to pay more taxes when suppliers file belated returns in Form GSTR-1. Moreover, the taxpayer would not be able to claim a refund of excess tax paid by them due to the muff of the suppliers. Also, this reconciliation exercise of ITC is going to consume a lot of man-hours every month.
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