Goods and Service Tax Act, 2017 was implemented in July 2017. One of the primary reasons for introduction of GST was to allow seamless flow of credit. Sec 16 of the CGST Act, 2017 provided for the eligibility and conditions for availing the input tax credit. The legislative provisions regarding the availment of ITC is given sub-section 2 of section 16 of the CGST Act, 2017. The extract of the same is provided below-
“no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed.
(b) he has received the goods or services or both.
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39”
From the above we can construe that the requirement of availing ITC are the following namely- 1) receipt of valid tax invoice
2) receipt of goods or services
3) discharge of the tax liability by the supplier and
4) furnishing of return.
The core idea of GST was unbreakable link between GSTR 1, GSTR 2 and GSTR 3. GSTR 1 provided for a summary of the outward supply, GSTR 2 was to represent the input credit available and GSTR 3 was a mechanism to discharge the liability based on the GSTR 1 and 2. GSTR 1 was launched for the suppliers to provide the summary of their outwards whereas GSTR 2 and GSTR 3 failed to see the light of day since the implementation of GST.
However, the authority introduced Form GSTR 3B that was to be used as an interim measure, but the same continues till today. Following this Form GSTR 2A was introduced in October 2019, which provided for an automatic summary from the GSTR 1 of the supplier to provide a condensed document that facilitates the registered person to avail the input tax credit. GSTR 2A is a dynamic summary and is updated on the real time basis. Subsequent to this GSTR 2B was introduced in July 2020, which will be an auto populated statement that will be generated on 12th of every month to simplify the process of claiming input tax credit.
Timelines in relation to Rule 36(4) of the CGST Rules, 2017
Rule 36 of the CGST Rules, 2017 provided for documentary requirements and conditions for claiming such input tax credit. Rule 36(4) read as below-
“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”
This 20 percent was changed to 10 percent from 1 Jan 2020 vide Notification No. 75/2019 dated 26th December, 2019. Further, this percentage for availment of credit was reduced to 5% with effect from 1 January 2021 vide Notification No. 94/2020 dated 22nd December, 2020.
Finance Bill, 2021
The Hon’ble Finance Minister presented the Union Budget 2021-22 on 1 Feb 2021. The finance bill seeks to insert the following clause (aa) to sub section 2 of section 16 of the CGST Act, 2017-
“the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37”
This essentially means that the registered person shall claim the ITC only if such details have been furnished by the supplier in his Form GSTR 1 and the same has been communicated to the registered person vide Form GSTR 2A/2B. Therefore, this restricts the condition for availment of such input tax credit to the extent of such credit being communicated to the registered person.
This imposes a critical question on the enforceability of Rule 36(4) of the CGST Rules, 2017. Since clause is being added to the relevant section, thereby effectively constraining the availment of such credit, the same shall take precedence over the Rule. The bill is yet to receive the presential assent, however, upon receipt of the same, the clause will be enacted thereby …….. We will have to await the GST Council’s response/clarification regarding the applicability of the rule to understand if the credit is going to be allowed only to the extent of invoice details which have been communicated by the supplier.