Legal validity of Rule 37A for F.Y 2022-23


Legal validity of Rule 37A for F.Y 2022-23


Rule 37A provides for reversal of ITC by recipient in case supplier fails to furnish GSTR -3B by 30th September following the end of the F.Y.

The attached Taxmann article finely captures the debates and controversies surrounding the rule.

Some additional pointers:-

GSTN Advisory dated 14th Nov 2023 computes ITC to be reversed by the recipient in terms of Rule 37A for F.Y 2022-23 and the same is being communicated to taxpayers on their e-mail IDs registered on the GST portal.

The recipient is liable to reverse ITC in terms of the rule and the department would also collect tax along with interest from the defaulting supplier resulting in unjust enrichment by the department at the cost of the recipient for no default in compliance on his part.

ITC cannot be reavailed in cases where proceedings have been initiated under section 74, 129 or 130 of the Act.

Furthermore, Rule 37A has been inserted on the strength of section 41 with prospective effect from 26th December 2022. Section 41 was inserted with prospective effect from 1st October 2022 vide Notification No. 18/2022 – CT by section 106 of Finance Act 2022.

How can the reversal of ITC under Rule 37A be calculated for the prior period from 1st April to 30th September 2023 when the parent section and the rule itself were not in the statute book?

What is the legal validity of such advisory from GSTN when the mechanism adopted for computation of ITC to be reversed has not been expressly communicated to the taxpayers?

Can GSTN override legislation to prescribe amounts for reversal? Consequently, can proceedings be initiated against registered persons basis such advisories?

The copy of the order is as under: