Restriction in Availment of Credit in terms of sub rule (4) of rule 36 of CGST Rules,2017

As per CGST Rule 36(4) : Input tax credit to the recipient in respect of invoices or debit notes that are not reflected in his FORM GSTR-2A shall be restricted to 10 % of the eligible credit available in respect of invoices or debit notes reflected in his FORM GSTR-2A. (Earlier the said restriction was 20% of eligible Invoices). This amendment is effective from 1^st January,2020.

The said rule had created a lot of confusion among the taxpayers therefore, a clarifying circular as stated below was provided.

Various issues relating to implementation of the said sub-rule have been examined and the clarification in Circular No. 123/42/2019 :

1. The restriction is not imposed through the common portal and it is the responsibility of the taxpayer that credit is availed in terms of the said rule and 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 tax payers.
2. The restriction of availment of ITC is imposed only in respect of those invoices / debit notes. Therefore, taxpayers may avail full ITC in respect of IGST paid on import, documents issued under RCM, credit received from ISD The restriction of 36(4) will be applicable only on the invoices / debit notes on which credit is availed after 09.10.2019.
3. The taxpayer have to ascertain the ITC from his auto populated FORM GSTR 2A as available on the due date of filing of FORM GSTR-1 under sub-section (1) of section 37. i.e., 11th of the succeeding month for monthly return filers and for quarterly return filers last day of the month succeeding the end of the quarter.
4. The ITC 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, shall not exceed 10 per cent (Earlier the said restriction was 20% of eligible Invoices) of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers.
5. The balance ITC may be claimed by the taxpayer in any of the succeeding months provided details of requisite invoices are uploaded by the suppliers. He can claim proportionate ITC as and when details of some invoices are uploaded by the suppliers provided that credit on invoices, the details of which are not uploaded remains under 20 per cent of the eligible input tax credit, the details of which are uploaded by the suppliers.

The circular though provided clarification on some questions of taxpayers, it failed to address the situation as to how the credit will be availed where the supplier is Quarterly return filer and the recipient is monthly return filer. This mechanism would have a great impact on the working capital of the taxpayers. Restriction imposed in Rule 36(4) will certainly impact working capital of taxpayers as they must pay more taxes when suppliers file belated returns in Form GSTR-1.Further, the taxpayer would not be able to claim refund of excess tax paid by them due to default of the suppliers.

Also, this reconciliation exercise of ITC is going to consume lot of man hours every month. Even after the issuance of a clarificatory circular the questions which remain unanswered seem to be plenty. The practical implementation of this rule looks very challenging and the trade and industry should brace themselves to ensure proper compliance with the rule to avoid uncertainties and litigation to the extent possible.

The practical issues to keep GSTR 2A at different dates in soft/hard form and compare the same with the previous ones to take the fresh credits added subsequently and to ensure the cap set under Rule 36 (4) has complied, would make the compliance of this rule cumbersome.

The author’s advice for the compliance of this rule is to take the credit as reflecting in GSTR2A by matching it to the invoices as shown in their purchase registers.

Disclaimer: This article doesn’t constitute professional advice. The author does not represent that the said information is correct and complete in all regards. The views contained in this article are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. Readers of this article are advised to take professional advice before taking any course of action or decision. The author does not assume any responsibility or liability in respect of the information contained in this article or for any decision/ course of action readers may take based on information contained in this article.

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