How to apply Rule 36(4) cumulatively for determining admissible Input Tax Credit in the GSTR-3B for September

1. Introduction

In order to nudge taxpayers to timely file their statement of outward supplies  (GSTR-1), restrictions on availing of input tax credit by the recipients was imposed by inserting sub-rule (4) to Rule 36 of the CGST Rules vide Notification No. 49/2019 Central Tax, dated 09-10-2019. The above sub-rule was amended vide Notification No. 75/2019 – Central Tax 26-12-2019 wherein the restriction was further tightened. Further recently said sub-rule has witnessed another change in light of Corona Outbreak according to which this sub-rule will not apply while filing of returns (GSTR-3B)for the period February to August, 2020 and will be applicable on cumulative basis for these months while filing of return for September, 2020.

In this article we will discuss about the statutory provisions and also try to understand the nuances of cumulative application of Rule 36(4) while filing GSTR-3B for September,2020.

2. Statutory Provisions:

Before proceeding ahead let’s first peruse the restriction as originally inserted by Rule 36(4). For ready reference the sub-rule in CGST Rules, 2017, is reproduced as below:-

“(4) 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 per cent. 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 simple words, the input tax credit availed by a registered person shall comprise of eligible credit as uploaded by supplier in its GSTR 1 (statement of outward supply) which is then auto populated in the GSTR 2A of the recipient. Further in regard to invoices not uploaded by suppliers and thus not reflected in GSTR 2A of the recipient, such recipient can at maximum avail input tax credit upto 20% of eligible credit as uploaded by supplier and reflected in its GSTR 2A. Needless to mention here that we are discussing about invoices of B2B supplies here, as anyways B2C supplies are made to ultimate consumers which being not GST registered are not eligible to take input tax credit.

2.1 Reduction of 20% limit to 10% (effective from 1^st January,2020)

Vide Notification No. 75/2019 – Central Tax 26th December, 2019 amendment was carried out in the Rule 36(4) whereby for the figures and words “20 per cent.”, the figures and words “10 per cent.” were substituted. This meant that the ITC cushion available towards availing of credit in respect of invoices not reflected in GSTR 2A was reduced from 20% to 10%.

2.2 Important points to be kept into mind while computing the restricted credit

Important points in regard to operation of above restriction are as under:-

• Calculation based upon invoices eligible for credit

Calculation of restricted credit as % of eligible credit. Accordingly, those invoices on which ITC is not available under any of the provision (say under section 17(5)) would not be considered for calculating the restricted credit.

• Restriction applicable on which invoices / debit notes

Restriction @ 20% applicable on the invoices / debit notes on which credit is availed after 09-10-2019 (no restriction of ITC prior to said date). Further restriction of 10% will apply on the invoices / debit notes on which credit is availed on or after 01-01-2020.

• Whether restriction will be imposed through portal

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 Rule 36(4) of CGST Rules shall be done on self-assessment basis by the tax payers

• On which invoices / debit notes restriction would apply

The restriction of availment of ITC is imposed only in respect of those invoices / debit notes, details of which are required to be uploaded by the suppliers under section 37(1) and which have not been uploaded. Therefore, 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 section 37(1), provided that other eligibility conditions for availment of ITC are met in respect of the same.

• Restriction is to be calculated supplier wise or on consolidated basis

The restriction imposed is not supplier wise and thus is on consolidated basis. The credit available under Rule 36(4) is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers.

• Restriction to be derived from GSTR 2A of which date

The taxpayer may have to ascertain the same from his auto populated FORM GSTR 2A as available on the due date of filing of FORM GSTR-1. Accordingly while filing of GSTR 3B say for the month of November,2019, the registered person shall calculate the ITC restriction on the basis of GSTR 2A as auto populated as on 11-12-2019, which is the due date of filing of GSTR 1 by suppliers for the month of November,2019.

• Availing of restricted ITC in subsequent months

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 (section 37(1)) remains under 20% / 10% of the eligible input tax credit, the details of which are uploaded by the suppliers. As per the Circular, 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(as reflected in GSTR 2A)divided by 1.20 / 1.10, as the case may be 1.20 being applicable for invoices for period 09-10-2019 to 31-12-2019 and 1.10 for invoices dated 01-01-2020 onwards.

2.3 : Corona Relief provided to tax payers by non application of Rule 36(4) for seven tax period / months (Feb to August,2020)

Recently vide Notification No. 30/2020 – Central Tax dated 03-04-2020 the following proviso has been inserted in Rule 36(4) which reads as under:

“Provided that the said condition shall apply cumulatively for the period February, March, April, May, June, July and August, 2020 and the return in FORM GSTR-3B for the tax period September, 2020 shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition above.”.

The above proviso is of much relief for the tax payers in these difficult times where we have been impacted by Corona Virus. As a consequence of above amendment, the tax payers can avail full input tax credit on the basis of invoice towards goods and / or services received for business purposes / taxable supply of goods or services or both even if same is not reflected in its GSTR 2A, without any restriction.

2.3.1 Rule 36(4) deferred and not scrapped

It is important to note here that Rule 36(4) has not been scrapped for the months February to August,2020 but rather has been postponed, as it has specifically been stated in the proviso that there will be cumulative adjustment of input tax for the months February to August,2020 in the return for the month of September,2020.

Accordingly a tax payer is not scot free towards input tax credit availed for said period and rather it should be ensured by the recipient that its supplier files its GSTR-1 for the period February to August, 2020 on timely basis not in any case after September, 2020 as in such a case the invoices will not be reflected in the GSTR 2A of the recipient as on 11-10-2020, which shall be used for computing restriction of credit cumulatively for the period February to September,2020 and GSTR 3B for September shall be filed accordingly.

2.3.2 Whether interest will be applicable in case ITC is required to reversed based on cumulative computation of restriction in month of September

In case cumulative ITC as per Rule 36(4) is computed in Sept.,2020 and same falls short of the ITC already availed during February to August,2020 such excess ITC availed will be required to be reversed in the GSTR 3B of Sept.,2020. An issue that may arise in this case is whether interest would be payable on this reversal or not and if payable it would be payable for which period. In view of author, as provisions towards restriction of ITC has been made inoperative during months of February to August,2020 and cumulative restriction is to be computed in September,2020 only and once computed if ITC is found to have been availed in excess and is duly reversed in GSTR 3B for the month of Sept.,2020, there should not be any interest implication. However in order to extinguish any iota of doubt, Government may in due course issue a clarification in this regard.

2.4 Calculation of cumulative restriction of Input Tax Credit

For understanding the application of newly inserted proviso to Rule 36(4) the following illustrations may be seen.

Illustration 1:

* Cumulative number of invoices and amount thereof as reflected in GSTR 2A of all the months from February to September, 2020 as on 11^th October,2020 i.e. due date for filing of GSTR 1 of September,2020.

**Not relevant in the months Feb to August, 2020 as as restriction under Rule 36(4) is not operational during such period and thus full ITC as per books / invoices received will be availed. The restriction of credit will be checked on cumulative basis while filing of return for September,2020.

*** The  cumulative amount of credit of all the  invoices from Feb to Sept,20 is Rs 62 lakh against which total credit of  Rs 58 lakh is reflected in  GSTR 2A. As per Rule  36(4) ITC in r/o of Invoices not reflected in GSTR 2A would be restricted to 10% of eligible ITC reflected in GSTR  2A. Thus ITC upto Rs 58 X 1.1=Rs 63.80 lakh can be availed. As total credit cannot exceed the actual ITC of Rs 62 lakh, ITC  of full Rs 8 lakh can be  availed in September,2020 as credit of balance Rs 54 lakh has already been availed from Feb  to August,2020.

Illustration 2:

Suppose in Illustration 1, cumulative ITC as reflected in GSTR 2As for months Feb to September, 2020 is Rs 54 lakhs towards 260 invoices. Thus cumulative ITC upto Rs 54 X 1.1 =Rs 59.40 lakh can be availed for period Feb to Sept.,2020. As credit of Rs 54 lakhs has already been availed from Feb to August,2020. Thus balance credit of Rs 5.40 lakh (Rs 59.40 lakh minus Rs 54 lakh) can be availed in the GSTR 3B for the month of September,2020.

Illustration 3:

Taking issue further, suppose in Illustration 1, cumulative ITC as reflected in GSTR 2As for months Feb to September, 2020 is Rs 45 lakh towards 230 invoices. Thus ITC upto Rs 45 X 1.1 = Rs 49.50 lakh can be availed for period Feb to Sept,2020. As credit of Rs 54 lakhs has already been availed from Feb to August,2020. Thus credit will be required to be reversed in the GSTR 3B for September, 2020 of Rs 4.50 lakh (Rs 54 lakh minus Rs 49.50 lakh).

4. Concluding Remarks

The Corona relief in regard to non levy of Rule 36(4) while availing ITC for the months February to August,2020 is a welcome move and would be sign of relief for the tax payers in such tough times.

However as the Corona relief is temporary and cumulative computation will be made of the restriction of ITC in the month of September,2020 it is advisable that in order to be safe from rigors of Rule 36(4), the recipients should ensure that they follow up with their suppliers to file their GSTR 1 and deposit the consequential tax well within time. Such follow up may be made starting from suppliers from which bulk supplies are received and GST paid is high. This will keep the restriction of ITC at bay as technically in case invoices totalling 91% of the eligible ITC amount for a month are uploaded by suppliers/ reflected in GSTR 2A, the recipient will be able to avail the entire eligible ITC for that particular month.

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Frah Saeed

Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.