GST UPDATE ON RELAXATION WITH RESPECT TO RULE 36(4) OF CGST RULES, 2017

GST UPDATE ON RELAXATION WITH RESPECT TO RULE 36(4) OF CGST RULES, 2017 - 004/2020-21

GST UPDATE ON RELAXATION WITH RESPECT TO RULE 36(4) OF CGST RULES, 2017
The introduction of the provision restricting the input tax credit availment vis a vis invoices not reflected in GSTR-2A to the extent of 10% of the invoices reflected in GSTR-2A under Rule 36(4) of the CGST Rules, 2017 was resisted by the trade and industry as it substantially had an adverse on the working capital requirements of the business. The taxpayers were forced to discharge their GST liability in cash inspite of possession of valid invoices for the sole reason that the suppliers failed to comply with the filing of GSTR-1 within stipulated time. As we all know that the entire world is witnessing the rigours of pandemic COVID-19, it was represented by the trade and industry that the provision restricting input tax credit under Rule 36(4) of the CGST Rules, 2017 should be suspended for the time being. We appreciate that the government has considered the demands of trade and industry and has amended the applicability of provision contained in Rule 36(4) of the CGST Rules, 2017. The present update seeks to discuss the amendment made and the implications thereon.
Notification No. 30/2020-Central Tax dated 03.04.2020 inserts the following proviso to Rule 36(4):-
“Provided that the said condition shall apply cumulativelyfor the period February, March, April, May, June, July and August, 2020 and the return in FORM GSTR-3B for the tax period September, 2020 shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition above.”
According to the above proviso, the provision restricting the input tax credit to the extent of 10% of the input tax credit reflected in the GSTR-2A (if certain invoices are not reflected in GSTR-2A) will be applicable cumulatively for the period February, 2020 to August, 2020 and the taxpayer is required to give cumulative adjustment of the input tax credit in the GSTR-3B filed for the month of September, 2020. In simple words, the requirement of restricting credit to the extent of 10% as contained in Rule 36(4) of the CGST Rules, 2017 that was earlier done on monthly basis has been deferred so as to provide relief to the taxpayers in difficult times.
Now, the following issues come in the minds of taxpayers:-

Whether taxpayer can avail 100% input tax credit for the months of February, 2020 to August, 2020 even if invoices pertaining to the input tax credit is not being reflected in their GSTR-2A for the respective months? Answer is YES. The taxpayer can avail entire input tax credit on goods or services received during the said period on the strength of invoices irrespective of the fact that the said invoices are reflected in the GSTR-2A of the respective months. However, the taxpayer is to cumulatively apply the restriction for the entire period in the GSTR-3B for the month of September, 2020. This is explained with the help of following example:-

MONTH	ITC as per invoices received	ITC reflected in GSTR-2A for the respective month	Details of ITC for previous period reflected subsequently in GSTR-2A	ITC taken in GSTR-3B for the respective month	ITC that should have been availed as per 10% restriction
JUNE	10,00,000	8,00,000	-	10,00,000	8,80,000
JULY	12,00,000	9,00,000	1,00,000	12,00,000	9,90,000
AUG	12,50,000	12,00,000	3,00,000	12,50,000	12,50,000

After implementation of the amended provision, the taxpayer is required to make cumulative adjustment of the invoices for the period February, 2020 to August, 2020 that have not been reflected in GSTR-2A till 11^th October, 2020. In the present case, the total input tax credit of the previous period which is not reflected in GSTR-2A is Rs. 1,00,000/- of July month, 2020. It is assumed that the input tax credit of Rs. 50,000/- not reflected in GSTR-2A pertaining to August, 2020 was reflected in subsequent month. Consequently, the taxpayer is required to reverse Rs. 1,00,000/- in the GSTR-3B filed for the month of September, 2020.

Whether relaxation is to be applied for the month of September, 2020? Answer is NO. The taxpayer is required to apply the restriction of 10% with respect to invoices not reflected pertaining to input tax credit availed in the month of September, 2020. The relaxation is applicable only for input tax credit pertaining to the month of August, 2020.
For computing the cumulative effect for the purpose of 10% restriction for the period from February, 2020 to August, 2020, taxpayer should download GSTR-2A of which date?

There is nothing clarified in the circular no. 136/06/2020-GST dated 03.04.2020 as regards the date on which GSTR-2A is to be taken for cumulative adjustment of input tax credit. However, reference to clarification issued vide Circular No. 123/42/2019-GST dated 11.11.2019, can be made wherein it was stated that the taxpayer is required to use GSTR-2A as available on the due date of filing of FORM GSTR-1 under section 37(1) of the CGST Act, 2017. Accordingly, we can infer that since cumulative adjustment is to be made in the GSTR-3B for the month of September, 2020, the taxpayer should take GSTR-2A as on the due date of filing GSTR-1 for the month of September, 2020 being 11^th October, 2020. However, it is expected that express clarification should be given by the government at the earliest possible.

Before parting, we submit that the above amendment is highly appreciated as it will provide much needed relief to the trade and industry to face the unforeseen pandemic situation.
This is solely for educational purpose.
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GST UPDATE ON RELAXATION WITH RESPECT TO RULE 36(4) OF CGST RULES, 2017 - 004/2020-21

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