Analysis on Restriction on ITC under Rule 36(4) of the CGST Rules

On recommendations of GST Council in its 37th meeting,a sub-rule (4) to Rule 36 of the Central Goods and Services Tax Rules, 2017 (hereinafter referred as “CGST Rules”) has been inserted vide Notification No. 49/2019 dated 09.10.2019 w.e.f 09.10.2019. The said sub-rule restricts the ITC of the invoices, the details of which have not been uploaded by the suppliers on the common portal to not exceed 20% of the eligible credit i.e. details of which are uploaded on the portal by the suppliers. The relevant part of Rule 36 is extracted below:

36. Documentary requirements and conditions for claiming input tax credit.-
(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.

Now, to clarify the circumstances or situations to avail ITC under sub-rule (4) of Rule 36 the Department has issued a Circular No. 123/42/2019-GST dated 11.11.2019. The said circular clarified the following points:
• The availment of restricted credit under Section 36(4) shall be done on self-assessment basis by the Taxpayer.
• Restrictions of Rule 36(4) will be applicable only on the invoices/debit notes on which ITC is availed after 09.10.2019.
• Restriction under Rule 36(4) shall be imposed only inrespect of those invoices/debit notes, details of which are required to be uploaded by the suppliers in GSTR-1 and which have not been uploaded.
• Full ITC in respect of:
 IGST paid on import,
 documents issued under RCM,
 Credit received from ISD etc,
 Any other supply outside the ambit of GSTR-1,
provided that eligibility conditions for availment of ITC are met in such cases.
• The restriction imposed is not supplier wise. It is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers.
• The invoices on which ITC is not available under any of the provision
[e.g. Section 17(5)] would not be considered for calculating 20% of the eligible credit available.
• The amount of ITC in respect of the invoices/debit notes whose details have not been uploaded by the suppliers shall be ascertained by the taxpayer from his auto populated FORM GSTR 2A as available on the due date of filling of FORM GSTR 1 under Section 37(1) of the CGST Act i.e. 11th for Monthly and 30th/31st for quarterly return.
• The balance proportionate ITC may be claimed by the taxpayer in any of the succeeding months provided details of requisite invoices are uploaded by the suppliers.

To understand Rule 36(4) of CGST Rules, we have prepared some illustration for your ease of reference:

Illustration:A taxpayer “C” receives 120 invoices involving ITC of Rs. 10 Lakhs from various suppliers (except ITC on RCM, on Import, and ITC received from ISD) during the month of October-2019 and ITC has to be claimed in GSTR-3B.

Situation Details of supplier’s invoices for which recipients is eligible to claim ITC 20% of eligible credit where invoices are uploaded Eligible ITC to be taken in GSTR-3B to be filed by 20th November.
1 Suppliers have furnished in their GSTR-1, details of 80 invoices involving ITC of Rs. 6 Lakhs as on 11th November Rs. 1,20,000/-

(20% of Rs. 6,00,000/-)

Rs. 6,00,000/- + Rs. 1,20,000/-

= Rs. 7,20,000/-

2 Suppliers have furnished in their GSTR-1, details of  100 invoices involving ITC of Rs. 9 Lakhs as on 11th November. Rs. 1,80,000/-

(20% of Rs. 9,00,000/-)

Rs. 9,00,000/- + Rs. 1,00,000/-**

=Rs. 10,00,000/-


**(The additional amount of ITC availed shall be limited to ensure that the total ITC availed does not exceed the total eligible ITC)


To avail balance proportionate ITC for a tax period inSituation 1.

Month Invoices pertaining to October 2019 uploaded during the month by Suppliers Eligible ITC Cumulative ITC availed for invoices pertaining to October 2019
Oct-19 Rs. 6,00,000/- Rs. 7,20,000/-

(120% of Rs. 6,00,000/-)

Rs. 7,20,000/-
Nov-19 Rs. 1,50,000/- Rs. 1,80,000/-

(120% of Rs. 1,50,000/- )

Rs. 9,00,000/-
Dec-19 Rs. 1,20,000/- Rs. 1,00,000/-

(120% of Rs. 1,00,000/-, but in December month the eligible ITC is exceeding Rs. 10 Lakhs. Therefore, this month the taxpayer should be restricted to Rs. 1,00,000/- for ITC of that tax period )

Rs. 10,00,000/-
Jan-19 Rs. 1,00,000/- Rs. 0/- (entire ITC has availed). Rs. 10,00,000/-


ALA Comments:

In such cases, assessees may opt for either of the following two options for claiming ITC:

Option 1
• The assessee may claim ITC of only those invoices which are reflected in its GSTR 2A. This approach would enable the assessee to avoid maintaining detailed records in respect of input tax credit not reflected in GSTR 2A.
• However, the same would result into cash flow blockage for the assessee equivalent to ITC on invoices for which suppliers have not uploaded details in the common portal.

Option 2
• Alternatively, an assessee may opt to claim ITC of upto 20% of eligible ITC each month and monthwise records and reconciliations in respect of ITC availed on invoices not available in GSTR 2A and its adjustments in subsequent periods.
• The same can be done through configuration in accounting software or through manual recording in excel sheets.
The assessee may choose any of the two options based upon the Cost-Benefit analysis along with the facts and circumstances of its business.

Team ALA


GST Law India is a blog on GST and allied commercial laws managed by members of the law firm ALA Legal.

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