100% restriction to avail ‘ITC’, if no GSTR-1 is filled by the supplier

It is submitted that a new clause (aa) to sub-section (2) of section 16
of The Central Goods and Services Tax, Act, 2017 (CGST Act, 2017) is
being inserted in Finance Bill, 2021. Please note that these proposals
will come into effect from a date to be notified later. It is stated
that Sections 2 to 79 of Finance Act, 2021 shall come into force on the
1st day of April, 2021 and Sections 99 to 114 of Finance Act, 2021 shall
come into force on such date as the Central Government may, by
notification in the Official Gazette, appoint.

It is submitted that Section 16 of CGST Act, 2017 contains four (4)
sub-section out of which sub-section (1) talks about the ‘eligibility
for taking Input Tax Credit (ITC)’. Whereas sub-section (2) talks about
‘conditions which should be satisfied for taking ITC’. Further
additional condition has been also put in sub-section (3) regarding ‘ITC
not admissible if depreciation claimed on tax component’. Moreover,
sub-section (4) provides the ‘time limit for availing ITC’.

It is stated that for conditions and restrictions, we have to see the
provisions of Section 16 (2) with Rule 36 of the Central Goods and
Services Tax, Rules, 2017 (“CGST Rules, 2017”). With the amendment by
Finance Act, 2021 a further new condition has been inserted is Section
16(2) of the CGST Act, 2017. Section 100 of the Finance Act, 2021
provides that-

“100. In section 16 of the Central Goods and Services Tax Act, in
sub-section (2), after clause (a), the following clause shall be
inserted, namely:––

  “(aa) the details of the invoice or debit note referred to in clause
(a) has been furnished by the supplier in the statement of outward
supplies and such details have been communicated to the recipient of
such invoice or debit note in the manner specified under section 37;”.

It is submitted that the aforesaid is one more condition regarding
entitlement of ITC. It provides that ITC on invoice or debit note may be
availed only when the details of such invoice or debit note have been
furnished by the supplier in the statement of outward supplies (GSTR-1)
as specified in Section 37 of the CGST Act, 2017 and such details have
been communicated to the recipient of such invoice or debit note.

It is pertinent to note that pursuant to the Rule 59(3) of CGST Rules,
2017, the details of outward supplies furnished by the supplier shall be
made available electronically to the concerned registered person
(recipient) in PART A of FORM GSTR-2A, in FORM GSTR-4A and in FORM
GSTR-6A through the common portal after the due date of filing of FORM
GSTR-1.

In this regard it is important to note that Rule 36(4) of the CGST
Rules, 2017 was recently amended vide Notification No. 94/2020-Central
Tax dated December 22, 2020 w.e.f. January 01, 2021 to restrict the ITC
to 5% in respect of invoices or debit notes not furnished by supplier in
FORM GSTR-1.

Rule 36 of CGST Rules, 2017 provides ‘documentary requirements and
conditions for claiming input tax credit’ under Chapter V INPUT TAX
CREDIT. Rule 36(4) of CGST Rules, 2017, now, restricts the credit
relating to the invoices not uploaded by the suppliers in their FORM
GSTR-1 to the extent of 5%. It provides that ITC can be here after
claimed in the FORM GSTR-3B only to the extent of 105% of eligible ITC
reflected in FORM GSTR-2A in aggregate.

Rule 36(4) of CGST Rules, 2017 is concerned with regard to restriction
on the availment of ITC in cases where FORM GSTR-1 has not been uploaded
by the suppliers under sub-section (1) of section 37. It is important to
note that this newly inserted rule is a substantive condition to be
fulfilled for the availment of ITC in addition to conditions prescribed
under Section 16 of CGST Act, 2017.

Now it is seeming that the aforesaid amendment is only to provide
statutory backing to much debated Rule 36(4) of the CGST Rules, 2017.

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