INCREASING COMPLEXITIES IN ITC RECONCILIATION FOR TAXPAYERS

INCREASING COMPLEXITIES IN ITC RECONCILIATION FOR TAXPAYERS
Yesterday notification no. 49/2019-Central Tax dated 09.10.2019 has been issued which created havoc in the minds of taxpayers registered in GST. Notification No. 49/2019 - Central Tax issued has made some important changes by making amendments in CGST Rules, thereby inserting rule 36(3) in CGST Rules ,2017 which states that-

ITC in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers in GSTR-1, shall not exceed 20% of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers in GSTR-1.

Although everyone is discussing its legal and ethical issues arising out of this amendment but this amendment also has innumerable practical difficulties attached with itself for the assessees as well as departmental officers. This update has been prepared to analyze the complications of this amendment in accounting and compliance procedural aspects.

Let us understand this with the help of an example. Suppose Mr. A registered person has ITC of Rs. 1, 00,000 duly reflected in GSTR 2A in the month of October 2019 and the amount of total credit availability as per invoices available with him is Rs. 1, 50,000. Now as per the inserted rule, A is eligible to take credit amounting to Rs. 1 lacs plus 20% of 1, 00,000 (Eligible credit) i.e. =Rs. 1, 20,000. This shows that out of Rs. 50,000 which are not auto populated in GSTR 2A of October 2019 month, Mr. A can avail credit up to Rs. 20,000. The balance amount of Rs. 30,000 is ineligible for availment for the particular month in 3B return.

The plain reading of the amendment does not indicate the complexities attached which will affect the business of assessees in many ways. We are briefly discussing all the relevant issues below-

Meaning of the termEligible Credit-The inserted rule does not elaborate the term eligible credit. However, depth analysis of the term depicts that eligible credit is the total credit reflected in the GSTR 2A for a particular period or month. However, this credit excludes ineligible credit as per Section 17(5), credit pertaining to exempt supplies, reverse charge supplies reflecting in 2A return etc.

Let us analyze this term while correlating with the above mentioned example.
Now, suppose the amount of credit reflected in GSTR 2A of November 2019 month is Rs. 2, 00,000. However, A can take credit for Rs. 3, 00,000 as per the invoices available with him. The issue under consideration is basically with the calculation of eligible credit for each period and maintenance of accounts.
The major questions arises are-

While matching GSTR 2A of the next month, if the invoices pertaining to Rs. 30,000 of the previous month are uploaded by the supplier; then what amount should be considered for calculating 20% of the eligible credit? Whether this should include Rs. 30,000 of the previous month or the amount reflecting in that particular month should be taken into consideration?
If accumulated credit is taken for calculating eligible credits, then assessee needs to match GSTR 2A of all the previous months which is a very tedious task and never ending exercise. Because GSTR2A is updated on real time basis and many assessees file their GSTR 1 on quarterly basis. The credit relating to quarterly return filers is reflected in the last month of a particular quarter.
In addition to this, how the assessee will do accounting entries relating to input tax credit which are ineligible due to 20% limit but eligible as per GST law that too month wise in their books of accounts. Maintenance of accounts as per this rule will be an impossible task for the accountants.

Applicability of Proviso to Section 16(2) of CGST Act, 2017- Third proviso to Sec. 16(2) of the CGST Act, 2017 provides for reversal of ITC on account of non-payment. Same is reproduced below for ready reference:

“Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed :
Further Rule 37 prescribes the mechanism for implementing the above referred provisions.
Now, we will further discuss the how the above proviso will increase the complexities when combined with new inserted rule.
Suppose Mr. A has made a purchase of Rs. 10,000(credit involved Rs. 1000) from Mr. B. A has availed the said credit in the month of October 2019 and the same is reflecting in GSTR 2A also. But after the elapse of 180 days, A fails to make payment to B. This calls for reversal of credit as per proviso to Section 16(2) and accordingly A reverses this credit in the return for the relevant month.
As and when A will make the payment to B, he is eligible to reclaim the said credit. The difficulty faced by A in this matter that whether the reclaimed credit should again be considered by him for the calculation of eligible credit in the month of reavailment. Though this loophole would be beneficial for assessee but department will point out issues during reconciliation checks.

Problems while filing refund application- There will be numerous problems attached to it that will be faced by exporters. They normally pay tax from ITC taken by them in accounts. But now there will be restriction on availment of credit. Hence, they will be forced to claim the refund in next month after credit is available to him or they might have to pay the tax in cash. The first option will delay the refund by one month and no exporter will intend to go for second option.

Likewise, the refund claim arising out of inverted duty structure will also be delayed. Similarly, the circular of CBIC which asks the exporters to show the invoices if not reflected in GSTR-2A will be redundant.

Worries of Small Taxpayers-Moreover, the recipient will stop purchasing from small suppliers who pay the GST on quarterly basis as the credit will be delayed in such cases.

The author of this update has seen that there is great problem while preparing reconciliation of invoices with GSTR-2A. Assessees are finding it difficult to do it on annual basis. But doing it on monthly basis will be impossible task. The supplier will upload its invoices on 11^th and it should be reconciled between 12 to 19^th as GSTR-3B is to be filed on 20^th. Hence, it is to be done in time bound manner. Is it will be possible with the present portal? Every rational person does have doubts.

In the nutshell we can say that as a result of this amendment, regular matching of ITC with the details available in GSTR-2A will become necessary. But there will be problems with department also to implement the same. GSTR-2A is dynamic and keep on changing on real time basis. It does not allow to download GSTR-2A on a particular date. Suppose, an assessee ignores the same then the department officer doing audit after 2 years cannot know the invoices uploaded on a particular date.

It seems that this amendment cannot be implemented in present form. It is suggested that the portal should allow to download the invoices on a particular date and also give a facility to show new invoices separately which have come on portal after the last downloaded GSTR-2A.

We hope that the GST council soon provides us more clarification on this amended rule. A clear picture and simplified version of the rule is the only thing assessee can expect from the government.
The content of this GST update is for educational purpose only and not intended for solicitation.
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INCREASING COMPLEXITIES IN ITC RECONCILIATION FOR TAXPAYERS

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