GST UPDATE NO. 232 ON CONTRARY CLARIFICATIONS ON REFLECTION OF INELIGIBLE ITC:-

GST law was formulated with the idea of uniform indirect taxation throughout the nation but with the passage of time, this objective has lost its significance in view of contrary advance rulings and contrary circulars issued by the CBIC and various State Governments. Recently, after conduct of the 47^th GST Council, CBIC has issued various clarifications on numerous issues in GST. The present update seeks to discuss the clarification issued vide Circular No. 170/02/2022-GST dated 06.07.2022.
According to the circular, guidelines have been issued for furnishing of information regarding ITC availed, reversal thereof and ineligible ITC in table 4 of GSTR-3B. It has been stated that with the advancement of the facility of auto-population of the input tax credit in table 4A of the GSTR-3B from FORM GSTR-2B, the reflection of reversal of ineligible credit becomes important for the assessees. The total ITC (eligible as well as ineligible) is being auto-populated from the Statement in FORM GSTR-2B in different fields of Table 4A of FORM GSTR-3B (except for the ineligible ITC on account of limitation of time period as delineated in sub-section (4) of section 16 of the CGST Act or where the recipient of an intra state supply is located in a different State/UT than that of place of supply.
It is clarified that the credit reversal under table 4D (1) will comprise of reversal under Rule 38 by a banking company or financial institution, Rule 42 pertaining to reversal of credit on account of supply of exempted goods or services, Rule 43 pertaining to reversal on capital goods on account of supply of exempted goods or services and ineligible ITC reported in table 4B(1).
On the contrary, reversal of ITC which is not permanent in nature such as under Rule 37 for non-payment of consideration to supplier within 180 days or non-receipt of goods or any credit taken inadvertently will be reported in table 4D(2) as other reversal. It is also stated that ITC not available, on account of limitation of time period as delineated in subsection (4) of section 16 of the CGST Act or where the recipient of an intra state supply is located in a different State / UT than that of place of supply, may be reported by the registered person in Table 4D (2). Such details are available in Table 4 of FORM GSTR-2B.
Accordingly, it is clarified that the reversal of ITC of ineligible credit under section 17(5) or any other provisions of the CGST Act and rules thereunder is required to be made under Table 4(B) and not under Table 4(D) of FORM GSTR3B.
It is worth noting that practically, no assessee uses the auto-populated figure of ITC reflected in Table 4A of GSTR-3B which is derived from GSTR-2B for the reason that it captures ineligible credit also. Majority of the assesses do not account for ineligible credit in table 4A of GSTR-3B and consequently, they do not reflect the reversal of such ineligible credit under section 17(5) of the CGST Act, 2017 under table 4D(1) of GSTR-3B. However, the clarification issued by the CBIC directs to reflect the reversal of credit under section 17(5) of the CGST Act, 2017 under table 4D(1) of GSTR-3B as the said credit is being auto-populated in table 4B(1) of the GSTR-3B.
It is also pertinent to mention that the above clarification is absolutely contrary to the Circular No. 01/2022 dated 05.04.2022 issued by the Rajasthan GST Department which has categorically stated that in order to properly make settlement or transfer of funds from the Centre to State or vice versa, it is necessary to reflect ineligible ITC as per the provisions of section 17(5) has to be reported in table 4D (1) whereas the table 4(D)(2) shall include the ineligible/blocked credit as per the provisions of Section 17(4) of the CGST/RGST Act read with Rule 38 and shall also include other ineligible ITC like ITC availed wrongly in the previous period etc. Now, the assessees falling under Rajasthan jurisdiction will be under dilemma as to which clarification should be implemented. The government should realise that controversy in GST regime as regards procedural compliance should be minimum so that unwarranted litigation can be avoided.

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GST UPDATE NO. 232 ON CONTRARY CLARIFICATIONS ON REFLECTION OF INELIGIBLE ITC:-

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