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October 8, 2020

Process for Excess ITC Claim for months Feb to Aug 2020 to be reversed in September 2020

by CA Shivam Jaiswal in GST

Process for Excess ITC Claim for months Feb to Aug 2020 to be reversed in September 2020

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Who can Claim ITC?

A registered person under GST can Claim ITC on fulfilment of the following conditions:

  • Possession of tax invoice or debit note or document evidencing payment
  • Receipt of goods and/or services
  • Returns have been furnished
  • Goods delivered by supplier to other person on the direction of a registered person should be against a document of transfer of title of goods
  • When goods are received in instalments, ITC can be claimed only when the last lot or instalment is received
  • Failure of the supplier towards supply of goods/services within 180 days from the date of invoice, ITC already claimed by recipient will be added to output tax liability and interest to paid on such tax involved. On payment to supplier, ITC will be again allowed to be claimed
  • No ITC will be allowed if depreciation has been claimed on tax component of capital goods
  • Time limit to claim ITC against an Invoice or Debit Note, is earlier of below dates:
    • a. Due date of filing of GST Return for September of the next Financial Year Or
    • b. Date of filing of Annual Returns of the relevant Financial Year
  • Common credit of ITC used commonly for:
    • a. Effecting exempt and taxable supplies
    • b. Business and non-business activity

Can ITC be claimed if the same is not reflected in GSTR 2A?

Let us understand the question with the help of an example.

For Instance, A sells goods to B. B will pay invoice amount + GST to A. A is liable to pay the GST to the Government.

B now uses the raw materials purchased by A to produce finished goods. B sells the finished goods and collects GST on the same.

B has to ideally pay the GST collected from the sale of his finished goods reduced by the ITC to the government.

GSTR-1 is the return to be furnished by A for reporting details of all outward supplies of goods and services made, or in other words, sales transactions made during a tax period.

GSTR-2A is the return containing details of all inward supplies of goods and services i.e. purchases made from registered suppliers during a tax period.

The issue in hand is whether B can claim ITC, if the same is not reflected in GSTR 2A?

Rule 36(4) of CGST Rules

The CBIC released an important notification on 9 October 2019, inserting a new sub-rule (4) under rule 36 of the CGST Rules, 2017. The rule states that the provisional tax credit (without invoices on GSTR-2A) can be claimed in the GSTR 3B only to the extent of 10% of eligible ITC reflected in the GSTR 2A.

As we know, GSTR-2A gets auto-populated based on the detailed filled in GSTR 1 from suppliers end even after passing of due date. Hence, a mismatch between invoices and updated GSTR 2A is common, making reconciliation challenging for taxpayers.

The taxpayers with annual turnover less than Rs 1.5 crores file quarterly returns as per GST rules. However, with Monthly ITC claiming via GSTR 3B, it is nearly impossible for anyone to reconcile monthly invoices with GSTR 2A (as it would be generated after the given quarter).

Discrepancies may also arise if the supplier has failed to pay the GST to the government and has not mentioned the supply in GSTR 1.

Although the recipient can claim provisional tax credit to the extent of 10% of the eligible ITC reflected in GSTR 2A, such provision will not be applicable if GST is not paid to the government at all by the supplier. Payment of tax to the government by the supplier is a prerequisite while claiming ITC by the recipient.

Notification No. 30/2020- Central Tax, dated 03.04.2020

This notification allowed for the cumulative application of the condition in rule 36(4) for the months of February, 2020 to August, 2020 in the return for tax period of September, 2020.

The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive. The lockdown though necessary has led to a disastrous impact on the economy. The Government of India announced a variety of measures to tackle the situation, from food security and extra funds for healthcare and for the states, to sector related incentives and tax deadline extensions.

Due to Notification No. 30/2020, the condition mentioned in Rule 36(4) 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.

Therefore, ITC which was claimed in excess of Rule 36(4) for the months of February, March, April, May, June, July and August, 2020 are to be reversed in the month of September 2020. Basically, total ITC availed in the GSTR-3B from February 2020 to September 2020 cannot exceed more than 10% of eligible credit.

Procedures to be followed by the recipient in cases of discrepancy:

According to Section 16, no registered taxable person shall be entitled to the credit of any input tax in respect of any supply of goods and/or services to him unless the tax charged in respect of such supply has been actually paid to the account of the appropriate Government, either in cash or through utilization of input tax credit admissible in respect of the said supply.

Procedure to be followed by the recipient in such cases:

  • Follow up with the supplier, reminding them to pay the GST and file the proper return
  • If the reason of non-filing of return is due to the fact that the supplier has opted to file quarterly returns, then there might be a time lag if up to 3 months or a little more between the invoice and its appearance in GSTR 2A.
  • The recipient will have to keep track of the same. If the supplier has not paid the tax, the credit will have to be reversed.

After considering the situations mentioned above, if any discrepancies are found in Form GSTR 2A and GSTR 3B leading to any excess ITC claimed by the recipient, the same must be paid by the taxpayer along with interest.

It is, therefore, necessary that reconciliation is done on a regular basis to ensure that only bona fide input tax credit is claimed.

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