Restriction in availment of Input Tax Credit 2020 – With Examples

Introduction: The basic rule is that output liability of any particular period should be discharged either out of ‘eligible input tax credit’ and if this is not sufficient, balance through payment of ‘Cash’. The amount of GST Charged in any Invoice or Debit Note by the supplier of goods and/or services are ‘Output’ liability for the supplier and the same is ‘Input Tax Credit’ for the recipient of ‘service / goods’ provided that is not in eligible as per section 17(5) of CGST Act,2017. In service tax regime, if the duty paying documents are proper as per Rule 4A of Service Tax Rule, there was no restriction of availing the input tax by the recipient of services. If the supplier of services does not discharge the ‘output liability’, the recipient could not be denied of ‘input tax credit’. It was the duty of the Government to collect those unpaid liability. Maximum, the department could issue notice u/s 87 of Finance Act, 1994 to the recipient for recovery of any amount due to the supplier of service. But now, in GST regime, Government has shifted such responsibility to some extent on the recipient and put restrictions on availing of input tax credit when output liability is not discharged by the supplier of services/goods. Our discussion here is on the restriction on availing Input Tax Credit when there is fault by the supplier of services.

Legal Provisions: Section 16 of CGST Act,2017 and Rule 36 of CGST Rule 2017 prescribes the eligible conditions for availing of ‘Input Tax Credit’

As per Section 16(2), any registered person shall be entitled to the credit of input tax subject to following conditions

  • a) He is in possession of taxpaying documents ( Invoice/Debit Notes/other eligible documents) b) He has received goods or services or both.
  • c) The tax charged in respect of such supply has been paid to Government either in cash or through utilization of input tax credit.
  • d) He has furnished the return u/s 39

Rule 36 of CGST Rule, 2017 prescribe the documentary requirements and conditions for claiming input tax credit. Amendment to Rule 36: Vide Notification No 49/2019- CentralTax, dated 09.10.2019, a new sub rule (4) has been inserted which is read as follows

“(4) Input tax credits 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.”

The above sub rule provides restriction in availement of input tax credit in respects of invoices or Debit notes which have not been shown in GSTR 1 as per section 37(1) of CGST Act, 2017. It means when the supplier of services/goods does not show his output liability in GST Return, the recipient of services/goods can avail only a part of the ITC as has been clarified through Circular no 123/42/2019-GST.

The restriction of 36(4) will be applicable only on the invoices / debit notes on which credit is availed after 09.10.2019.

The notation ‘not exceeds 20 percent of the eligible credit available’ needs a close reading and clarified as follows with the explanations and example in the following paragraphs.

Important points to be noted:

1. Computation to be done on self assessment basis: It has been clarified that the restriction of availing input tax credit has not been imposed through the portal i.e. not though the system. It is the responsibility of the tax payer to calculate the eligible input tax credit on his own on selfassessment basis.

2. Restriction on specific Invoices/ Debit Notes: Restriction of this 20% is applicable in respect of ITC on such invoices/Debit Notes applicable which are required to be uploaded as per Section 37(1) of CGST Act,2017. As per Section 37(1) of CGST Act, an ‘Input Service Distributor’, a’ nonresident taxable person’, a person paying tax under ‘composition scheme’ or deductor of ‘TDS’ or ‘TCS’ are not required to furnish return under this section. It means taxpayers may avail full ITC in respect of IGST paid on Import, document issued under RMC, Credit received from ISD.

3. Restriction on consolidated basis and not individual supplier basis: The restriction imposed is not supplier basis but the restriction is imposed on total input credit from all suppliers in that tax period. Example, Say there are 10 supplier and total ITC is Rs 2, 00,000. Two suppliers have not furnished return and ITC in respect of which are Rs 1,20,000/-. For computation purpose, Rs 2,00,000 to be given considerations and not Rs 1,20,000/-

4. On what basis eligible input credit will be computed: Suppose, Mr X has to compute his eligible ITC. He need to follow the following steps

Step1: Compute eligible Input tax Credit for all invoices received during a tax period. For example, Mr X has received total 110 invoices and total eligible ITC is Rs 5,00,000/-. As per GST Act, all such 110 invoices should be uploaded in GSTR 1 by the issuer of such 110 invoices.

Step 2: Down Load auto populated GSTR 2A from system which should show all the output invoices updated in X’s GST No. If all 110 invoices were uploaded, here also 110 invoices should be shown. Now we need to compare and compute the no of invoices not reflecting in Form 2A and the value of Input corresponding to such invoices.

Before going into the details of how much ITC a registered tax payer can avail in his FORM GSTR-3B in a month, let us consider a comprehensive example illustrate the various alternative circumstances

Suppose in a month Mr. X, a taxpayer has received the following Invoices along with the corresponding Input Tax

table

Analysis of above Example:

  • 1. 4 numbers of Rent-a-Cab invoices involving ITC of Rs 4,000 is ineligible as per Section 17(5).
  • 2. 1 ISD invoice and 5 RCM invoices involving ITC of Rs 60,000/- is eligible for 100% ITC and not subject to restriction of Rule 36(4)
  • 3. Remaining 100 invoices involving ITC Rs 10, 00,000/-are eligible ITC for this discussion and is subject to restriction of Rule 36(4)

Now we will discuss the various circumstances and the eligible ITC to be taken in GSTR 3B by a taxable person.

Situation 1: Out of the 100 invoices, only 80 invoices involving ITC of Rs 6,00,000/- have been furnished the details of output supplies in GSTR 1.

  • Step 1: Computation of clearly eligible ITC which have been shown in GSTR-1 ( reflected in 2A)i.e. Rs 6,00,000/-
  • Step 2: compute 20% of total eligible input credit i.e. . 20% of Rs 6,00,000/- = Rs 1,20,000/-
  • Step 3: Total amount of Input to be taken in GSTR 3B is Rs (6,00,000 + 1,20,000) = Rs 7,20,000/-
  • Step 4: ITC not availed but can be availed subject to reflection in 2A is Rs ( 10,00,000 – 7,20,000)= Rs 2,80,000/-

Accounting Treatment:

1. While booking the incoming invoices, Rs 10,00,000/- have been booked in GST input credit account. This is Asset in nature ( A+)

2. Out of these, Rs 7,20,000/- to be transferred to ‘GST availed account’ by passing following entry GST Availed Account Dr (A+)…… Rs 7,20,000

GST Input Credit Account ( A-) Rs. 7,20,000

3. Amount utilized for paying of Liability out of availed account. (Say Rs 5,00,000) GST Payable Account ( L-)………….Dr Rs 5,00,000

To GST Availed Account (A-) Rs 5,00,000

  • Balance amount of GST Availed account Rs 2,20,000/- should represent the Return closing balances
  • Rs 2,80,000/- will be remained in GST Input Account which will be availed subsequently .

Situation 2: Out of the 100 invoices, only 85 invoices involving ITC of Rs 8,00,000/- have been furnished the details of output supplies in GSTR 1.

  • Step 1: Computation of clearly eligible ITC which have been shown in GSTR-1 ( reflected in 2A)i.e. Rs 8,00,000/-
  • Step 2: compute 20% of total eligible input credit i.e. . 20% of Rs 8, 00,000/- = Rs 1,60,000/-
  • Step 3: Total amount of Input to be taken in GSTR 3B is Rs (8, 00,000 + 1, 60,000) = Rs 9,60,000/-
  • Step 4: ITC not availed but can be availed subject to reflection in 2A is Rs (10, 00,000 – 9, 60,000)= Rs 40,000/-

Situation 3: Out of the 100 invoices, only 90 invoices involving ITC of Rs 8,50,000/- have been furnished the details of output supplies in GSTR 1

  • Step 1: Computation of clearly eligible ITC which have been shown in GSTR-1 ( reflected in 2A)i.e. Rs 8,50,000/-
  • Step 2: compute 20% of total eligible input credit i.e . 20% of Rs 8,50,000/- = Rs 1,70,000/-
  • Step 3: Total amount of Input should be eligible to be taken in GSTR 3B is Rs ( 8,50,000 + 1,70,000) = Rs 10,20,000/- but it exceeds the total eligible input credit of Rs 10,00,000/-
  • Step 4: Total amount of Input to be taken in GSTR 3B is Rs ( 8,50,000 + *1,50,000) = Rs 10,00,000/-
  • Step 5: ITC not availed but can be availed subject to reflection in 2A is Rs (10, 00,000 – 10, 00,000)= NIL

When can the balance ITC be claimed as availement as per Rule 36(4)

  • In situation 1, un availed ITC is Rs 2, 80,000/- and ITC which has not reflected in 2A is Rs 4, 00,000/-
  • In situation 2, un availed ITC is Rs 40,000/- and ITC which has not reflected in 2A is Rs 2,00,000

Now questions arises when such un availed ITC will be availed and under what circumstances.

We can avail the balance ITC either in Full or in proportion as per the conditions enumerated below

a) Balance ITC be claimed by the tax payer in any of the succeeding months provided details of the requisite invoices are uploaded by the suppliers.

b) Tax Payer 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 /1.20

  • In situation 1, Balance ITC of Rs 2,80,000/- can be availed when cumulative balance in 2A will be Rs 10,00,000 / 1.2 = 8,33,000/-. It means additional amount of Rs 2,33,000/- ( 8,33,000 – 6,00,000) should be reflected in 2A to avail Rs 2,80,000/- as final ITC
  • In situation 2, Balance ITC of Rs 40,000/- can be availed by additional amount of ITC of Rs 33000/- ( Rs 833000 – 800000) reflected in 2A

c) Proportionate ITC may be claimed as and when details of some invoices are uploaded by the suppliers provided that credit on invoices, the details of which are not uploaded remains under 20% of the eligible ITC , uploaded by the supplier

Case 1:

  • In situation 1, suppose suppliers upload invoices of Rs 1,50,000 out of Rs 4,00,000/-.
  • Eligible ITC remaining to be uploaded Rs ( 400000 – 150000) = Rs 250000/-
  • Total input credit reflected in 2A is Rs 7,50,000/- ( Earlier Rs 6,00,000 + Now Rs 1,50,000/-)
  • This is lower than Rs 8,33,000 as computed in point (b) above. So proportionate ITC aligible
  • Amount of Proportionate Credit : Rs 150000 + 20% of Rs 1,50,000 = Rs 1,80,000/- Total Input availed together Rs 7,20,000+1,80,000/- = Rs 9,00,000/-

Case 2:

  • In situation 1, suppose suppliers upload invoices of Rs 2,50,000 out of Rs 4,00,000/-.
  • Eligible ITC remaining to be uploaded Rs ( 400000 – 250000) = Rs 150000/-
  • Total input credit reflected in 2A is Rs 8,50,000/- ( Earlier Rs 6,00,000 + Now Rs 2,50,000/-)
  • This is higher than Rs 8,33,000 as computed in point (b) above.
  • So, entire ITC of Rs 2,80,000/- will be availed by Mr. X. Total Input availed together Rs 7,20,000 + 2,80,000/- = Rs. 10,00,000/-

Conclusion: Life for the executives handling statutory compliance is getting tough. Either they will have to do such complicated computation every month or avail the ITC for those invoices which have been reflected in 2A. In additions, books of accounts should be synchronized with the methods being adopted. Every month they have to follow up with the vendors who have not uploaded their liabilities in GSTR 1. Most interestingly, input credit of any particular financial year can be availed till next September. If within in that period, a vendor does not upload their liability in GSTR-1, these will be loss to the taxpayer even if they are not in fault. It may be considered to take ITC of such invoices and immediately reverse the same in the same month. Now time has come to tighten our belt to chase the vendors regularly or taking bolt decision to hold their payments from running accounts bill to mitigate the probable losses.