All About New Rule 36(4)
Government has recently issued Notification 49/2019 dated 9th Oct 2019 and a Circular dated 11th Nov 2019 restricting the Input Tax Credit (ITC) where GSTR 1 has not been filed by the supplier.
CBIC has inserted the new sub-rule Sub-rule (4) to Rule 36 with effect from 09.10.2019
Extract of sub-rule (4) of 36 areas
“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 percent 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.”
In order to clarify the provision and its applicability, the Government has issued Circular No.123/42/2019 GST Dated 11th November 2019 and the clarifications are summarized as under:-
- The restriction is not imposed through the GST portal and it is the responsibility of the taxpayer that credit is availed in terms of the said rule. 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 registered person.
- 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 sub-section (1) of section 37, provided that eligibility conditions for availing of ITC are met in respect of the same
- The restriction imposed is not individual supplier wise. The credit available under sub-rule (4) of rule 36 is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers.
- Calculation will be based on Eligible ITC only; 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 sub-section (5) of section 17) would not be considered for calculating 20% of the eligible credit available.
- Effective from 9th October 2019, the restriction of 36(4) will be applicable only on the invoices / debit notes on which credit is availed after 09.10.2019.
- The restriction of 20% applies with respect to 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 subsection (1) of section 37 as on the due date of filing of the returns in FORM GSTR-1 of the suppliers for the said tax period .It means that person has to wait till last moment for filing GST returns if entire credit is not available.
To Sum up:
- ITC, where GSTR 1 has not been filed, shall be restricted to 20% of total eligible credit as per GSTR2A.
- The restriction imposed is not supplier wise and has to be seen consolidated basis.
- The credit available under sub-rule (4) of rule 36 is linked to total eligible credit from all suppliers taken together.
- In the subsequent period eligible, ITC of the previous period would be 20% of Total Eligible ITC minus ITC already claimed in respect of ITC not reflected in GSTR 2A.
- This restriction does not apply to ITC on Imports, under Reverse charge mechanism, Input service Distributor etc.
- ITC, where GSTR 1 has not been filed by the supplier, can be claimed in the subsequent period when filed.
- This is additional condition for availing ITC apart from those mentioned in section 16.
Now the chronicle issues faced by the Registered Person:
- Separate Monthly Reconciliation to be prepared every month.
- Delay in uploading of GSTR-1by the supplier would result in Credit availment in next month by the supplier.
- Obviously Delayed credit availment where vendors are filing GSTR-1on Quarterly basis.
- Issue of Credit Reconciliation at the time of filing Annual Return will be there.
This new rule 36(4) is restricting the ITC which is not appearing in GSTR-2A. It is very clear that due to this circular a new type of hassle and harassment will be caused among registered person and tax professionals as well.