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August 11, 2020

HC issues notice to government challenging the restriction of ITC on invoices not uploaded by vendor under section 36(4) of GST

by Rubina Dsouza in GST, Legal Court Judgement

Rajasthan HC issues notice to government challenging the restriction of ITC on invoices not uploaded by vendor under section 36(4) of GST


Frequent changes and revisions in GST Rates have led to uncertainty for businessmen and government. Limitless updates and notifications have now become a trend, and there is no clarity instead, it is making it more complicated and cumbersome. The constant updates, notifications etc. has become a nightmare, and any single unintentional missed update of notification is giving invitation to penalty and interest.

The new Input Tax Credit (ITC) rule limiting ITC from 20% to 10%, and managing all calculation has become difficult for SMEs and also other Large Corporates. There is no training or explanation  given as to how the calculation is to be done, and the carry forwards ITC to be set off and therefore there is no uniformity in following this rule.

Further, there is sever lack of natural justice as the burden to prove the purchase details is levied on the purchasers instead of punishing the defaulting sellers.

The curbing of working capital and increasing the government revenue thereby creates a pressure on the honest tax payers. Moreover, restrictions to claim ITC only to the extent of that reflecting in GSTR2A is unfair to the person filing tax returns within due dates.

The invoices not uploaded by vendor within due date is default on the part of the vendor, restricting the ITC claim of the purchaser are unfair trade practices and lack of justice done to the purchasers.  

Provisions of Law and Relevant Sections

Section 36 (4) of CGST Act

Section 36 (4) had been inserted vide Notification No. 49/2019 – Central Tax dated 09/10/2019 stated as follows, “(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”. Section 36 (4) was notified by the Central Government u/s 164  which empowers the central Government to make rules, (d) conditions and restrictions under section 16 on availing input tax credit and categories of tax paying documents.

Explanation: In accordance to this rule provisional credit may be claimed in the GSTR-3B, only to the extent of 20% of eligible ITC appearing in the GSTR-2A. The new rule under section 26 (4) was inserted to give effect to this law. It only provides that the availment of ITC would be conditional upon the reflection of the concerned transactions in due course with its limit being set to 20%

Further, this Section was amended and the CBIC in its 38th GST Council Meeting held on 18/12/2019, further restricted the availability of provisional ITC and notified the applicability of the 10% provisional Input Tax Credit (ITC) rule, bringing it down from the existing 20%. The percentage of ITC has now been reduced to 10% from the previous 20%.

The conditions to availment of ITC credit under Rule 36(4) of CGST Act, states that credit of input tax for invoices not uploaded by the supplier shall be limited to 10% of the invoices uploaded by the supplier.

Section  16 of CGST Act- Eligibility for taking Input Tax Credit

Registered person to take credit: Every registered person subject to Section 49, shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. The input tax credit is credited to the electronic credit ledger.

Section 38 of CGST Act provides for Furnishing details of inward supplies

Section 38 (1) states as follows, “Every registered person, other than an Input Service Distributor or a non-resident taxable person or a person paying tax under the provisions of section 10, section 51 or section 52, shall verify, validate, modify or delete, if required, the details relating to outward supplies and credit or debit notes communicated under sub-section (1) of section 37 to prepare the details of his inward supplies and credit or debit notes and may include therein, the details of inward supplies and credit or debit notes received by him in respect of such supplies that have not been declared by the supplier under sub-section (1) of section 37.

Section 42 of CGST Act provide for the matching, reversal and reclaim of ITC

Section 42 (3)  states as follows, “Where the input tax credit claimed by a recipient in respect of an inward supply is in excess of the tax declared by the supplier for the same supply or the outward supply is not declared by the supplier in his valid returns, the discrepancy shall be communicated to both such persons in such manner as may be prescribed.”

Is it fair to restrict  ITC on invoices not uploaded by vendor under section 36 (4)?

We will understand this in the case of M/s Gr Infraprojects Limited Versus Union Of India HC RJ

Facts of the Case:

The petitioner herein has sought to challenge the notification dated 09.10.2019 under Annexure-4, issued by the Ministry of Finance, Government of India introducing sub-rule (4) to Rule 36.

Submissions of the Petitioner

The petitioner submits that introduction of sub-rule (4) to Rule 36 is ultra vires to Sections 38(1) and 42(3) of the CGST and RGST Act.


  1. Section 36 (4) restricts  to claim ITC and states that credit may be claimed in the GSTR-3B, only to the extent of 10% of eligible ITC appearing in the GSTR-2A. Which means that only that ITC can be claimed  which the supplier has updated in the relevant period of GSTR1. Therefore, if the supplier or the vendor has failed to file his GSTR1 the same shall not reflect in the GSTR2A of the purchaser and he will be restricted to claim his lawful ITC inspite of having a valid tax invoice due to the default of the supplier.
  2. It further is lack of natural justice and ultra vires i.e, beyond power to implement such restrictions.

Ruling and order

The Hon’ble bench of Rajasthan High Court has issued notice to govt, in case of Rule 36(4), which places a restriction on availment of ITC @10/20% over and above amount reflected in GSTR 2A, despite having valid Tax Invoice.

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