GST UPDATE No. 233 ON CIRCULAR REGARDING REFLECTION OF INELIGILBE CREDIT-PART-2

In our previous update, we had brought out the anomaly in the clarification issued by the CBIC on reflection of ineligible credit vis a vis circular issued by the Rajasthan State GST department. In the present update, we wish to discuss the practical difficulties in implementation of the guidelines laid down by the recent Circular No. 170/02/2022-GST dated 06.07.2022 issued by the CBIC.
It has been clarified that since the auto-populated figure of input tax credit from FORM GSTR-2B in table 4A of the GSTR-3B consists of ineligible input tax credit under section 17(5) of the CGST Act, 2017, the assessee is required to reflect reversal of the credit under section 17(5) of the CGST Act, 2017 in table 4B(1) so that the net input tax credit in the electronic credit ledger does not consist of ineligible credit. It is submitted that majority of the taxpayers do not account for ineligible input tax credit in their books of accounts as it is very tedious to maintain the record of ineligible credit. Consequently, many of the assessees do not even bother to reflect the amount of ineligible credit in table 4D(1) of the GSTR-3B. However, the clarification expects that the assessee identifies the ineligible credit which is auto-populated in table 4B (5) and reflect it as reversal under table 4B(1) of the GSTR-3B. In our opinion, this is futile exercise as it compels the assessee to keep track record of ineligible credit which is not even being accounted for in the normal course by majority of the assessees. This will definitely add to the compliance burden of the taxpayers. Moreover, as per section 17(5) of the CGST Act, 2017, input tax credit is not available to the assessee for certain specified goods and services, but the circular requires the assessee to avail the said ineligible credit and thereafter reflect it as reversal which is unproductive exercise. The circular prescribes a mechanism of reflection of ineligible credit by considering the report generated by the GST portal in FORM GSTR-2B which is not proper as merely because ineligible credit is being included in the auto-populated figure, the taxpayer cannot be forced to change their accounting of transactions.
It is further submitted that the circular also specifies that in case the assessee has not received the goods but the input tax credit pertaining to the said invoice is being reflected in the auto-populated figure of table 4A of the GSTR-3B, the assessee is required to reflect the said amount of ITC as reversal in table 4B(2) and can re-claim it when the goods are actually received in the premises. This again is a cumbersome exercise as the assessee would be required to keep a track record of the goods in transit and the fact that the ITC is being re-claimed on their actual receipt. It appears that the above directions have been issued so that the auto-populated figure of ITC in table 4A is being re-conciled. However, it is submitted that the assessee will have to re-claim the said ITC of goods in transit in the subsequent return due to which there will be discrepancy in the figure as stated in the GSTR-3B and that auto-populated from FORM GSTR-2B. Consequently, in our view, the above direction leads to unwarranted exercise on the part of assessee and should be re-considered by the government. Moreover, no assessee will record such goods not received in books of account. Hence, he has to manually maintain this information on monthly basis as department may ask this information after 4 or 5 years at the time of audit of taxpayer. Keeping record of this information for so many years which are not incorporated in accounts also is again cumbersome procedure.
In opinion of author of this update, this recording is also not legally sustainable as there is clearcut provision in statue that the ineligible credit as well as credit on goods-in-transit should not be taken. Although there are many decisions on this count that taking of credit and reversing the same means that the credit has not been availed. But nobody knows that Auditor General may object the same and ask for penal action.
Lastly, the requirement of reflecting the ineligible ITC on account of limitation of time period as delineated in sub-section (4) of section 16 of the CGST Act, 2017 is yet another procedural liability to be discharged by the assessee by maintaining the list of transactions for which input tax credit is not available on account of being not claimed within the period of limitation. It is to be noted that this data can be compiled only in the month of November following the relevant financial year.
The above clarification increases the procedural compliance of the taxpayers’ manifold which has no revenue implication as such. The guidelines laid down by the circular should not be made mandatory as it would lead to unnecessary harassment of the assessees.

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GST UPDATE No. 233 ON CIRCULAR REGARDING REFLECTION OF INELIGILBE CREDIT-PART-2

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