The Central Board of Indirect Taxes and Customs (CBIC) latest GST circular had cleared the speculation over many vital concerns relating to how to calculate 20% amount over and above the eligible amount of ITC, cut-off dates as well as where the new rule shall not be applicable. The sub-rule (4) to rule 36 of the Central Goods and Services Tax Rules, 2017 was introduced by means of a notification No. 49/2019- Central Tax, made on 09th October 2019 provided restriction in availing of input tax credit (ITC) relating to invoices or debit notes, the details of which were not been uploaded by the suppliers under sub-section (1) of section 37 of the Central Goods and Services Tax Act, 2017.
In a huge relief for GST taxpayers, the Central government currently had clarified the new rules regarding the availing of input tax credit under the GST. It stated that a certain category of Input Tax Credit claims like ITC with regard to the IGST paid on imports as well as GST paid under the reverse charge mechanism were kept out of the scope of the latest rules which has been introduced last month. The new rules applied by the CBIC limited input tax credit claims towards 20% of the entitled amount where invoice matching was done. Though, the notification issued by the CBIC on 9th October 2019 had caused much confusion over the method of calculating this 20% amount, the cut-off date as well as also whether it shall be calculated supplier-wise or on a consolidated basis. These issues prompted the CBIC’s GST policy wing in the direction of issuing a new circular presently for clarifying all these aspects.
The circular which has been issued by the Central Board of Indirect Taxes (CBIC) clarified that this 20% cap on the eligible Input Tax Credit shall not be calculated supplier-wise and GST payers could avail the input tax credit on a consolidated basis.
Many complaints have been received by the Modi government regarding that certain businesses were availing input tax credit by means of false GST invoices. To check the issues of misusing of input tax credit system, the CBEC, the nodal unit shall implement indirect taxes in the nation, and last month it has been made compulsory in order to match the invoices uploaded through the suppliers in their GSTR1 forms before the buyers could avail Input Tax Credit in their GSTR-3 returns. Though, it also permitted the buyers towards claiming 20% more input tax credit over and above the eligible sum where invoice matching was completed but the lack of transparency over the method of calculation made confusion amongst GST payers.
The latest circular made by CBIC also clarified that the total sum of ITC, even after the addition of 20% input tax credit over and above the eligible sum where invoice matching has been completed, cannot go beyond the total amount of input tax credit that could be claimed.
It is the duty of the taxpayer to make certain that they do not claim above 20% of the eligible input tax credit (ITC) pertaining to invoices that have not been uploaded by the suppliers.
In a circular which was issued on the subject relating to the claim of ITC on invoices not uploaded, the Central Board of Indirect Taxes and Customs (CBIC) had clarified that a taxpayer shall require ascertaining the eligible input tax credit from the GSTR-2A form, which gets auto-populated through the virtue of a supplier filing its GSTR 1 form.
GSTR 1 form comprises invoice details of every one of the sales a corporation makes. The entries which are made in GSTR 1 by the supplier receive automatically get reflected in the purchaser's GSTR 2A, which has the details of every one of the purchases made by a corporation.
Since the GSTR-2A is dynamic, the credit which appears on the last date of filing of GSTR-1 must be considered for claiming ITC, as clarified in the stated circular by CBIC.
Presently the tax authorities have clarified that it is the duty of the taxpayers towards ascertaining the eligible input tax credit, any claims beyond the set limit might result in interest and penalty.
It also stated that the 20% limit on claiming ITC must be on a consolidated basis and not on a supplier basis, that is, every eligible ITCs against all suppliers. Though, those invoices against which ITC is not available according to some provisions of the GST shall not be considered for calculating 20% of the eligible credit available.
It was stated that the limitation of 20% is not applicable to IGST paid on import, reverse charge mechanism as well as credit transfer by means of input service distributor.
Conclusion
The government had lately limited availing of input tax credit to 20% on goods and services received through a taxpayer but whose invoices were not uploaded (on the GSTN website) by the suppliers of the goods and services. This was an effort to plug revenue leakages.
The government was struggling to attain its GST revenue targets with periodic collections in the month of August and September had fallen short of collections in corresponding months last year.
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