Recent Circular | Clarifications on 20% restriction on ITC availment under Rule 36(4) of the CGST Rules, 2017

The Central Board of Indirect Taxes and Customs (‘CBIC’) has recently issued Circular No. 123/42/2019-GST dated November 11, 2019 (‘Circular’) clarifying various issues relating to newly inserted sub-rule 4 to Rule 36 of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) regarding 20 percent restriction in availment of Input Tax Credit (‘ITC’) [Refer trailing mail regarding detailed analysis of newly inserted Rule].

The clarifications given in this Circular, are in line with our analysis discussed in the trailing mail. The Circular also contains the following additional clarifications that are worth noting:

• Restriction under Rule 36(4) of the CGST Rules is applicable only on the invoices / debit notes on which ITC is availed after October 9, 2019.

NITYA’s Comments:

The moot question which remains unanswered, is meaning of ITC availed after October 9, 2019. Previously, in Para 3 of the Press Release dated October 18, 2019, CBIC has clarified that credit can be said to be availed when the taxpayer reflects the same in FORM GSTR-3B. Basis above, the restriction will apply to ITC availed in FORM GSTR-3B of September 2019 which is filed after October 9, 2019.

• Taxpayer needs to ascertain 20 percent of eligible ITC from its auto populated FORM GSTR-2A on the due date of filing of Form GSTR-1.

• The taxpayer can claim balance ITC in any of the succeeding months when its suppliers upload the details subject to satisfaction of the above condition.

NITYA’s Comments:

As per the Circular, a taxpayer needs to monthly check balance in FORM GSTR-2A as on date of filing FORM GSTR-1 by the suppliers viz. 11^th of succeeding month. To this extent, the Circular is incorrect. This is because the Rule does not specify any date on which taxpayer needs to undertake this exercise. Hence, the restriction imposed by the Circular that a taxpayer should reckon credit amount on the date of filing of FORM GSTR-1 by the suppliers is ultra-vires the provision. Logically, a taxpayer should view the balance in FORM GSTR-2A at the time it files its return in FORM GSTR-3B.

As FORM GSTR-2A is dynamic and credit amount appearing therein keeps changing, there is no mechanism available with the taxpayers to justify credit amount appearing on due date of filing of FORM GSTR-1. Taxpayers are suggested to take screenshot of FORM GSTR-2A as an evidence.

The recipients procuring supplies from suppliers filing quarterly return, are recommended to inform their suppliers to regularly upload details of invoices / debit notes so that such details also appear in FORM GSTR-2A. In this way, ITC pertaining to suppliers filing quarterly return can be availed monthly.

Another important aspect to note is the manner in which a taxpayer should compute 20% restriction cumulatively for multiple months. This can be understood from the following illustration:

(Amount in ₹)

In the above illustration, for total eligible ITC of ₹ 36,00,000 for all months put together, a taxpayer needs to ensure that ₹ 30,00,000 eligible ITC details have been uploaded by its suppliers on a cumulative basis by 11^th of Month.