India: Government Restricts Availment Of ITC Not Appearing In GSTR-2A, Introduction Of Pre-Show Cause Notice Procedure And Other Changes

Last Updated: 21 October 2019
Article by SKP  

The government has issued various notifications to give effect to the recommendations of the GST Council. The key amendments have been captured in this alert.

Amendment to CGST Rules

The government vide Notification No. 49/2019-Central Tax dated 9 October 2019 has made certain amendments to the Central Goods and Services Tax Rules, 2017 ('CGST Rules').

Restriction on availment of ITC not appearing in GSTR-2A

  • Rule 36 of the CGST Rules provides the conditions for claiming of Input Tax Credit (ITC).
  • Now, a new sub-rule (4) has been inserted in Rule 36 to provide that ITC in respect of invoices / debit notes not uploaded by suppliers cannot exceed 20% of the eligible ITC pertaining to invoices / debit notes uploaded by the suppliers.

Illustrative example

Particulars Actual ITC Eligible ITC as per amendment
Eligible ITC in respect of invoices/debit notes uploaded by the supplier i.e. appearing in GSTR-2A 100 100 [No change]
Eligible ITC in respect of invoices/debit notes not uploaded by the supplier i.e. not appearing in GSTR-2A 200 100*20% = 20; or 200,
whichever is lower i.e. 20
Total eligible ITC to be claimed in GSTR-3B 120
Restricted ITC under Rule 36(4) 200-20 =180

Procedural changes in case of suspension of registration

  • Rule 21A(3) of the CGST Rules provide that a person whose registration has been suspended, shall not make any taxable supply during the period of such suspension.
  • Now, an explanation has been inserted to clarify that the expression "shall not make any taxable supply" means that the registered person shall not issue a tax invoice and, accordingly, not charge tax on supplies made by him during the period of suspension.
  • The rule has been further amended to provide that in case the suspension of registration is revoked, the supplies made during the period of suspension should be governed by the invoicing and returns procedure as applicable in case of a new registration.

GSTR-3B to be considered as return under Section 39

  • Recently, the Hon'ble Gujarat High Court had ruled that GSTR-3B is not a return under Section 39 of the Central Goods and Services Tax Act, 2017. This resulted in a situation wherein ITC in respect of financial year 2017-18 could have been claimed till the due date of filing of annual return in GSTR-9 (currently 30 November 2019).
  • However, the government has now brought in a retrospective amendment to Rule 61 of the CGST Rules, with effect from 1 July 2017, providing that in case where the time limit for furnishing GSTR1 or GSTR-2 has been extended, GSTR-3B should be considered as return under Section 39.
  • Consequently, it appears that the decision of the Hon'ble Gujarat Court has been negated and the due date of availing ITC pertaining to financial year 2017-18 should be the due date of filing of GSTR-3B of March 2019, as envisaged by the government.

Extension of due date for availing transitional credit in case of specified taxpayers

  • Rule 117 of the CGST Rules has been amended to empower the GST Commissioner to further extend the due date of filing GST TRAN-1 and GST TRAN-2 to 31 December 2019 and 31 January 2020 respectively, in case of taxpayers who could not file the said forms on account of technical difficulties on the GST common portal.

Introduction of a pre-show cause notice procedure

  • Rule 142 of the CGST Rules has been amended to introduce a procedure for communicating to the taxpayer any tax, interest and penalty ascertained by the officer in Part A of FORM GST DRC-01A.
  • The taxpayer may communicate either its acceptance of the liability and pay tax, or provide his submissions denying the liability in Part B of FORM GST DRC-01A.
  • The above procedure will precede the procedure in relation to issuance and adjudication of a show cause notice by the officer.

Due dates of GSTR-1 and GSTR-3B notified

In view of the postponement of the new return filing mechanism, the government has notified the due dates of filing GSTR-1 and GSTR-3B for the subsequent period, as follows:

Particulars Period Due date
GSTR -1 (monthly) – Registered person having aggregate turnover of more than INR 15 million October 2019 to March 2020 11th of the succeeding month
GSTR -1 (quarterly) – Registered person having aggregate turnover of up to INR 15 million October 2019 to December 2019 31 January 2020
January 2020 to March 2020 30 April 2020
GSTR-3B (monthly) October 2019 to March 2020 20th of the succeeding month

Option of filing of GSTR-9 for specified taxpayers

In line with the recommendation of the GST Council, the government vide Notification No. 47/2019-Central Tax dated 9 October 2019 has made an annual return in GSTR-9 for the financial years 2017-18 and 2018-19 optional for taxpayers whose aggregate turnover does not exceed INR 20 million.

SKP's Comments

In line with one of the basic objectives of GST, the new return filing mechanism to be implemented from the financial year 2020-21 has intrinsically linked the ITC of the recipient with the declarations made by the supplier. A similar principle has now been incorporated in the existing returns by restricting the ITC in relation to invoices not appearing in GSTR-2A. However, certain aspects of the amendment, such as the periodicity for which such restricted ITC needs to be calculated, lacks clarity.

Nevertheless, businesses should amend their processes to undertake monthly reconciliation of the ITC register with GSTR-2A and communicate discrepancies with their vendors, to avoid delays in availing ITC which can result in working capital blockage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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