Clarification on cumulative applicability of rule 36(4) 

The present article covers the recent clarification issued by the Central Board of Indirect Taxes and Customs, vide circular no. 142/12/2020- GST dated 9^th October 2020, with regard to the applicability of rule 36(4) of the Central Goods and Services Tax Rules, 2017 for February 2020 to August 2020 and its effect thereon while filing return in Form GSTR-3B for the month of September 2020.

Understanding the basics of rule 36(4)-

Rule 36(4) of the Central Goods and Services Tax Rules, 2017 was for the first time introduced vide notification no. 49/2019- Central Tax dated 9^th October 2019. The same was later on amended vide notification no. 75/2019- Central Tax dated 26^th December 2019.

The provisions basically restrict the availment of the input tax credit by the registered person in Form GSTR-3B whose corresponding details of sales are not reflected/ uploaded by the supplier on the GST portal in Form GSTR-1 to 10% of the eligible input tax credit. In short, the input tax credit shall not exceed 10% of the eligible credit reflected in Form GSTR-2A.

Temporary relaxation in compliance with provisions of rule 36(4)-

On account of COVID-19 pandemic, the Central Board of Indirect Taxes and Customs announced temporary relaxation vide notification no. 30/2020- Central Tax dated 3^rd April 2020.

As per the relaxation, conditions in rule 36(4) will apply cumulatively for the period February 2020 to August 2020. Accordingly, the GST return in Form GSTR-3B for the period September 2020 needs to be furnished considering the cumulative adjustment of the input tax credit for the months February 2020 to August 2020.

Recent clarification in the matter-

Post completion of relaxation, filing of GST return in Form GSTR-3B for the month of September 2020 becomes quite crucial. In order to clarify the position to some extent, the Central Board of Indirect Taxes and Customs has issued circular dated 9^th October 2020. As per the clarification, the taxpayers are advised to follow below steps before the filing of the return in Form GSTR-3B-

1. Determine the details of invoices uploaded by the suppliers via Form GSTR-1 for the period February 2020 to August 2020. Such details will include all the invoices uploaded till the due date of filing of Form GSTR-1 for the month of September 2020.
2. The taxpayer is required to reconcile the following figures-
   • Input tax credit availed by the taxpayer in Form GSTR-3B return for the period February 2020 to August 2020, with
   • The details of invoices and debit notes uploaded by the suppliers for the period February 2020 to August 2020 (i.e. eligible input tax credit).

It should be noted here that the cumulative amount of input tax credit availed by the taxpayer in Form GSTR-3B should not exceed 110% of the cumulative amount of an eligible input tax credit.

Treatment of excess input tax credit availed-

Board, vide the circular, has clarified the consequence of excess input tax credit availed (i.e. more than 110% of eligible input tax credit). Accordingly, while filing return in Form GSTR-3B for the month of September 2020, the taxpayer is required to reverse the excess input tax credit so availed in Table 4(B)(2).

In case the taxpayer fails to reverse the excess input tax credit, the same will be treated as availment of ineligible input tax credit during the month of September 2020.

Illustration-

Let us understand the above concept with the help of an example-

The details of input tax credit availed and an eligible input tax credit of Mr. A for the period February 2020 to September 2020 is tabulated hereunder-

Cumulative treatment is to be given for the months February 2020 to August 2020, as per the relaxation provided vide notification no. 30/2020- Central Tax dated 3^rd April 2020. Accordingly, a maximum eligible input tax credit for the cumulative period February 2020 to August 2020, considering the restriction provided under rule 36(4) would be as under-

Eligible input Tax Credit as per the invoices uploaded by the supplier-        INR 1,81,000

10% of the eligible input tax credit (i.e. 10% of INR 1,81,000)           –         INR    18,100

Maximum eligible input tax credit as per restriction under rule 36(4)  –         INR 1,99,100

However, as per the above example, the taxpayer has cumulatively availed input tax credit of INR 2,01,000. Hence the taxpayer is required to reverse the ineligible input tax credit of INR 1,900. While filing return in Form GSTR-3B for the month of September 2020, the taxpayer is required to reflect the reversal of INR 1,900 in table 4(B)(2).

Importantly, provisions of rule 36(4) will apply individually to the month of September 2020.