CBIC to restrict availment of input tax credit

Notification issued by CBIC to restrict Availment of input tax credit by recipient for invoices which are not uploaded by the suppliers   CGST Rules have been amended vide Notification Central Tax- 49/2019 to provide for the restriction of availment of Input Tax Credit of those invoices by the recipient, which have not been uploaded by the suppliers i.e. in respect of the invoices or debit notes, the details of which have not been uploaded by the suppliers in their respective GSTR-1, the recipient will not be eligible to avail the 100% of Input Tax Credit of the GST charged on those invoices/ debit notes. A new Sub Rule 36(4) have been inserted to the CGST Rules, 2019 which is effective 09^th October, 2019. As per the notification, in such a scenario, the recipient will be eligible to avail the ITC for a month as follows:

100% of the Eligible ITC which have been reported by the Supplier in its GSTR-1 and is being reflected in the GSTR-2A of the recipient by the due date of filing of GSTR-3B (A)

Add: Balance Eligible ITC which have been not been reported by the Supplier in its GSTR-1 and is not being reflected in the GSTR-2A of the recipient by the due date of filing of GSTR-3B , the recipient would be eligible to avail 20% of (A) above, subject to the condition that it should not exceed the total ITC eligible for such Forward Charge invoices for a month i.e. both reported and un-reported ITC.

To provide clarification on the above notification, the CBIC has also released a Circular F.NO. CBEC-20/06/14/2019-GST providing some of the much-needed clarification for the ease of taxpayers. Some of the important clarification provided by the circular is as below:

1. The restriction of ITC is applicable only on the invoices/ debit notes which are required to be uploaded by the supplier under Section 37(1) of the CGST Act, 2017 and therefore it would not be applicable on ITC in respect of IGST paid on imports, ITC on GST to be paid under RCM, ITC received from ISD etc;
2. The above restriction is to be seen on a consolidated level i.e. GST Registration wise and not vendor wise;

• Since GSTR-2A is a dynamic document, therefore to do the said calculation of 20% of the eligible input tax credit being reported for a month, the recipient needs to ascertain the same, basis the GSTR-2A as available on the due date of filing of GSTR-1;

  Further, the abovementioned circular has also provided the following illustrations, for the calculation of eligible ITC for a month in various scenarios.   Illustration: Say a taxpayer “R” receives 100 invoices (for inward supply of goods or services) involving ITC of Rs. 10 lakhs, from various suppliers during the month of Oct, 2019 and has to claim ITC in his FORM GSTR-3B of October, to be filed by 20th Nov, 2019.

Case	Details of suppliers’ invoices for which  recipient is eligible to take ITC	20% of eligible credit where invoices are uploaded	Eligible ITC to be taken in GSTR-3B to be filed by 20th Nov.
Case I	Suppliers have furnished in Form GSTR-1, 80 invoices involving ITC of Rs. 6 lakhs as on the due date of furnishing of the details of outward supplies by the suppliers	Rs.1,20,000/-	Rs. 6,00,000 (i.e. amount of eligible ITC available, as per details uploaded by the suppliers) + Rs.1,20,000 (i.e. 20% of amount of eligible ITC available, as per the details uploaded by the suppliers) = Rs. 7,20,000/-
Case II	Suppliers have Rs. furnished in Form GSTR-1, 80 invoices involving ITC of Rs. 7 lakhs as on the due date of furnishing of the details of outward supplies by the suppliers.	Rs.1,40,000/-	Rs 7,00,000 + Rs. 1,40,000= Rs. 8,40,000/-
Case III	Suppliers have furnished in FORM GSTR-1, 75 invoices having ITC of Rs. 8.5 lakhs as on the due date of furnishing of the details of outward supplies by the suppliers	Rs. 1,70,000/-	Rs. 8,50,000/- + Rs.1,50,000/-* = Rs. 10,00,000   * The additional amount of ITC availed shall be limited to ensure that the total ITC availed does not exceed the total eligible ITC.

  3. When can balance ITC be claimed, in case availment of ITC is restricted as per the provisions of rule 36(4)?:   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 (under sub-section (1) of section 37) remains under 20 percent of the eligible input tax credit, the details of which are uploaded by the suppliers. Full ITC of balance amount may be availed, in present illustration by “R”, in case total ITC pertaining to invoices the details of which have been uploaded reaches Rs. 8.3 lakhs (Rs 10 lakhs /1.20). In other words, the taxpayer may avail full ITC in respect of a tax period, as and when the invoices are uploaded by the suppliers to the extent Eligible ITC/ 1.2. The same is explained for Case No. 1 and 2 for the illustrations provided above as under:   Case I: “R” may avail balance ITC of Rs. 2.8 lakhs in case suppliers upload details of some of the invoices for the tax period involving ITC of Rs. 2.3 lakhs out of invoices involving ITC of Rs. 4 lakhs details of which had not been uploaded by the suppliers. [Rs. 6 lakhs + Rs. 2.3 lakhs = Rs. 8.3 lakhs]. Case II: “R” may avail balance ITC of Rs. 1.6 lakhs in case suppliers upload details of some of the invoices involving ITC of Rs. 1.3 lakhs out of outstanding invoices involving Rs. 3 lakhs. [Rs. 7 lakhs + Rs. 1.3 lakhs = Rs. 8.3 lakhs].   Our Comments: The above notification along with the clarification provided would have far-reaching implications for all the registered persons in future and particularly from the returns to be filed from October-2019 onwards. The restriction of availment of ITC on the invoices/ debit notes which have not been uploaded by the non-compliant vendors and linking the same with 20% limit of the eligible credit of the invoices/ debit notes which have been uploaded by the compliant vendors, would require constant monitoring of the GSTR-2A with the Input Tax Credit Register on a monthly basis and constant follow-up with the vendors who have not filed their GSTR-1 within due date. The amendment would also add the burden of the honest taxpayers for their monthly GST compliances.   This amendment would also impact the working capital of the registered taxpayers as now they would not be able to avail the full input tax credit for a month, in case 83.33%  (100/1.2) of the eligible GST invoices (in value terms) have not been uploaded by the vendors. It seems that the aim of the Government is to make all the Taxpayers as the watchdog of the GST Department and to pressurize all the late filers to file their GSTR-1 return on time and to curb the menance of fake and paper invoices.   Contact Us for advice related to GST   Last Updated: 19th November 2019 This article is contributed by:  Deepak Arora Executive Director,  Indirect Taxes