A brief note on Rule 36(4) of CGST Rules, 2017

[Ganeshan Kalyani]

Rule 36 of CGST Rules, 2017 was amended vide Notification No. 49/2019-Central Tax dated 09.10.2019 to insert sub-rule (4). The sub-rule (4) is reproduced below:

“(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.”

The above notification was brought into effect from 09.10.2019. As per this notification the taxpayer was allowed to claim input tax credit only to the extent of 20% more of the eligible input tax credit that is appearing in GSTR-2A , if the invoice on which input tax credit is claimed is not appearing in GSTR-2A report.

This notification made the taxpayer to follow-up with their supplier to ensure that they upload their outward supply invoices in their GSTR-1 timely. If the amount of input tax credit is small it does not impact much. However, if the credit amount is substantial then it hits the cash flow of the taxpayer much.

First amendment to rule 36(4):

The rule 36(4) was first amended vide notification no. 75/2019-Central Tax dated 26.12.2019 to reduce the percentage from 20% to 10%. The rule after amendment read as below:

“(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 10 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.”

The above notification was brought into effect from 01.01.2020.As per this notification the taxpayer is allowed to claim input tax credit only to the extent of 10% more of the eligible input tax credit appearing in GSTR-2A if the invoice on which input tax credit is claimed is not appearing in GSTR-2A report.

Second amendment to rule 36(4):

The rule 36(4) is further amended vide notification no. 94/2020-Central Tax dated 22.12.2020 to substitute the percentage from 10% to 5%. The rule after amendment read as below:

“(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 5 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.”

The above notification is brought into effect from 01.01.2021. As per this notification the taxpayer is allowed to claim input tax credit only to the extent of 5% more of the eligible input tax credit appearing in GSTR-2A if the invoice on which input tax credit is claimed is not appearing in GSTR-2A report.

Author’s view:

Rule 36(4) provides a restriction to claim input tax credit. The taxpayer can claim input tax credit on the invoice which are appearing in GSTR-2A. For that the supplier must upload all his outward supply invoices in his GSTR-1 appropriately. Appropriately means that he must furnish correct GSTIN and correct tax amount in the return. Otherwise the input tax credit is allowed only to the extent of 5% more to the eligible credit that is appearing in GSTR-2A.

Further, the taxpayer has to consider the condition of section 16 and section 17 before applying rule 36(4) condition. A proper working of such input tax credit is essential to substantiate the claim of input tax credit. 

The taxpayer has to monthly reconcile the eligible inupt tax credit and keep all the workings in a proper manner so that in case any notice comes it becomes easy to reply to that notice.

Discussions to this article

[Sumit Srivastava]

Nicely put in chronological manner.

Thanks for the write-up.

Your articles are always useful for an assessee.

thanks

[Ganeshan Kalyani]

Thank you so much Sri Sumit Sir for your appreciation.

[KASTURI SETHI]

Sh.Kalyani Ji,

Very very useful article. It helps all.

[Ganeshan Kalyani]

Thank you Sri Kasturi Sir.

[CAMITUL MEHTA]

One important aspect is Rule 36(4) no where mentions that the ITC to be taken in "any particular tax period" has to be within the prescribed limits of that "tax period"

What I mean to claim is Rule 36(4) is a broader rule therefore, one may argue that on a yearly basis if my ITC is within limits of updated GSTR-2A then I am satisfying the conditions.

Experts may pl examine the validity of this argument.

Thanks.

[KASTURI SETHI]

SH. CAMITUL MEHTA JI,

On both of points my views are as under:-

POINT NO.1 : The validity of Rule 36(4) has been challenged in the Court and that is pending decision. May be in High Court or Supreme Court. This sub-rule is contradictory to Section 16 of CGST Act. The Act has to be preferred to the Rules. Time limit has to be followed as per Section 16 of the Act. Rules are never framed which give to give message in conradiction of the Act. You may have seen those rules which are not in letter and spirit of the relevant Act are struck down by the High Court or Supreme Court.

POINT NO.2 : I do not concur with your views. ITC is to be taken as per Sections 16 & 17 of CGST Act. The very much basis of availing ITC is statutory records. GSTR 2 A is not FINAL for this purpose. Your statutory records are final which are to be audited by the department. You cannot treat GSTR 2 A fool-proof.

[CAMITUL MEHTA]

Respected Sethi Sir,

Thanks for your input.