With effect from 09-10-2019, a new rule 36(4) has been introduced in which the new manner of the input tax credit utilisation has been notified so that the taxpayer can avail the ITC credit of even those inputs which are not being reflected on the GSTR 2A on the provisional basis. For the period 09-10-2019 to 31-12-2019, the said limit has been fixed at 20% over and above the ITC being reflected in the GSTR 2A I.e. the taxpayer can claim the ITC credit of 20% of the figure over and above the ITC credit being reflected over and above the figure being reflected in the GSTR 2A, the limit of which has been reduced to 10% with effect from 01-01-2020. The said rule has been contradictory on various circumstances where the supplier is the Quarterly return filer and the receiver is monthly return filer. And from time to time the Department has been issuing the notices to the Taxpayers on the basis of the ITC utilisation as per the rule 36(4).
Now, being on the compliance part of that rule as well as as per the current scenario of COVID 19 outbreak, it has been difficult for the taxpayers to comply with the requirements amidst of the nation wide lockdown. Therefore, in order to provide relief to the taxpayers, the Government has notified the relaxation in the application of the provision of the Rule 36(4).
As per the Notification no. 30/2020-Central Tax dated 03-04-2020 which says as under:-
“Provided that the said condition shall apply cumulatively for the period February, March, April, May, June 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 conditions above.”
The said notification shall come into effect with the date of publication in the official gazette I.e. 03-04-2020.
Before the notification, the taxpayers have to take the ITC in their GSTR 3B as per the application of the Rule 36(4) and if there is any mismatch in the Tax credit due to non filing or delay in filing on part of the supplier, the taxpayers have to follow up with them for the filing of the return or have to pay the tax in case the assessed tax as per the Rule 36(4) fall short of the actual Input tax credit on the basis of the invoices received.
Therefore, in order to give the relaxation to the taxpayers on account of the ITC utilisation, the Government has notified the manner of availment of the ITC in which the calculation of the ITC utilisation and availment for the months of February to September 2020 in accordance with the provisions of the Rule 36(4) can be done on the cumulative basis on the time of filing of GSTR 3B for the month of September 2020.
Let’s understand this with the help of an example:-
Scenario before 03-04-2020
Mr. X, a trader of 18% item and filing the monthly GSTR1, has procured the purchase of Rs. 15,00,000/- on which there is an ITC of Rs. 2,70,000/-. the supplier of the said purchase is Quarterly GSTR 1 filer. And apart from that purchase, the ITC which has been reflecting in the GSTR 2A is Rs. 15,00,000/- and the GST output tax liability for the month is Rs. 18,00,000/-.
In the current scenario, the calculation of the ITC utilisation as per the provisions of Rule 36(4) shall be:-
Output tax liability – Rs. 18,00,000/-
Input tax credit being reflected in GSTR 2A – Rs. 15,00,000/-
ITC not reflected in GSTR 2A – Rs. 2,70,000/-
Net Tax liability shall be:-
Output tax liability – Rs. 18,00,000/-
Input Tax Credit – Rs. 15,00,000/- X 110% = Rs. 16,50,000/-
Balance to be paid – Rs. 1,50,000/-
In this scenario, Mr. A shall have to pay the tax of Rs. 1,50,000/- even though he has the ITC of Rs. 2,70,000/- on account of purchase being procured but could not be availed due to the non reflection in the GSTR 2A and he has to wait for the Quarterly return filing of the supplier in order to take the ITC on account of the purchase made.
To nullify this effect, the Government has notified the relaxation in the application of the provision of Rule 36(4). From 3rd April 2020 onwards, the taxpayers can avail the ITC on the basis of the Invoices they receive from the Suppliers, apart from whether the invoices have been reflecting in the GSTR 2A and calculate the tax liability in the GSTR 3B monthwise from February till August 2020 I.e. there will be no matching of GSTR 2A with the purchase register for the respective months. In the GSTR 3B of September 2020, the taxpayer shall have to assess the Input tax credit cumulatively by comparing the GSTR 2A with the purchase register and after the due compliance of the provisions of Rule 36(4), the taxpayer shall be able to the file the GST return I.e. after the matching of the Books with the GSTR 2A and while matching if the situation comes where any supplier has not booked the ITC in their respective GSTR1,then the taxpayer shall have to assess the tax payable by applying the provisions of Rule 36(4).
Conclusion – In our opinion, the relaxation being given by the Government for the availment of ITC as per the Rule 36(4) is the need of hour keeping in view the current scenario of the economy. It will also ease the burden on the part of the taxpayers on account of unnecesary tax payment due to non matching of the ITC with the GSTR 2A.
