The Central Board of Indirect Taxes and Customs (CBIC) has recently issued GST Circular 193/05/2023 dated July 17, 2023, providing important clarification regarding the management of discrepancies in Input Tax Credit (ITC) between FORM GSTR-3B and FORM GSTR-2A. This circular specifically addresses the period from April 01, 2019 to December 31, 2021. It aims to ensure uniformity in the implementation of the law and offers guidance on dealing with such differences. In this article, we will break down the key points and provide you with a comprehensive guide to navigating these ITC differences in your GST returns.
Background: GST Circular 183/15/2022 and ITC Restrictions
To provide context, it is crucial to revisit GST Circular 183/15/2022 issued on December 27, 2022. This circular offered guidance on dealing with ITC discrepancies for the financial years 2017-18 and 2018-19. It outlined conditions for availing ITC in FORM GSTR-3B compared to FORM GSTR-2A.
Since July 1, 2017, Section 16 of the CGST Act has imposed restrictions and conditions on ITC availability. However, the specific restrictions on availing ITC beyond the amount available in FORM GSTR-2A were introduced through rule 36(4) of the CGST Rules. These restrictions came into effect on October 9, 2019.
Understanding Rule 36(4) of CGST Rules
Rule 36(4) of the CGST Rules allows registered persons to claim ITC for invoices or debit notes that were not reported by suppliers in FORM GSTR-1 or through the Invoice Furnishing Facility (IFF). The extent of this additional credit varied over time. From October 9, 2019 to December 31, 2019, registered persons could claim ITC up to 20% of the eligible credit for reported invoices or debit notes. This limit was reduced to 10% from January 1, 2020 and further decreased to 5% from January 1, 2021.
CBIC Guidelines for Different Periods
The circular provides guidelines for various periods, each with its own set of conditions. Let’s understand these guidelines in detail:
Period #1: April 1, 2019 to October 8, 2019
For this period, the guidelines of GST Circular 183/15/2022 will be applicable in their entirety. As rule 36(4) came into effect from October 9, 2019, these guidelines address ITC discrepancies prior to that date.
Period #2: October 9, 2019 to December 31, 2019
During this period, registered persons were allowed to claim ITC up to 20% of the eligible credit for invoices or debit notes that were not reported by suppliers in FORM GSTR-1 or using the IFF. However, this claim was subject to the conditions specified in clause (c) of sub-section (2) of Section 16 of the CGST Act. It is essential to adhere to these conditions to ensure compliance. The guidelines provided in GST Circular 183/15/2022 should be followed for verification purposes, with the additional condition that the claimed ITC does not exceed 20% of the eligible credit for reported invoices or debit notes.
Period #3: January 1, 2020 to December 31, 2020
During this period, rule 36(4) of the CGST Rules allowed registered persons to claim additional ITC up to 10% of the eligible credit beyond what suppliers reported in FORM GSTR-1 or using the IFF. The guidelines from GST Circular 183/15/2022 should be applied for verification purposes. The condition remains the same, i.e. the claimed ITC should not exceed 10% of the eligible credit for reported invoices or debit notes.
Period #4: January 1, 2021 to December 31, 2021
For this period, rule 36(4) of the CGST Rules permitted registered persons to claim additional ITC up to 5% of the eligible credit beyond what suppliers reported in FORM GSTR-1 or using the IFF. The guidelines from GST Circular 183/15/2022 should be followed for verification, ensuring that the claimed ITC does not exceed 5% of the eligible credit for reported invoices or debit notes.
Period #5: January 1, 2022 and onwards (Current ITC Regulations)
From January 1, 2022, the GST regulations underwent changes. As per the amendment to clause (aa) of sub-section (2) of section 16 of the CGST Act and the amendment to rule 36(4) of the CGST Rules, no ITC can be claimed for supplies unless they are reported by suppliers in FORM GSTR-1 or using the IFF and communicated to the registered person in FORM GSTR-2B.
CBIC GST Circular 193/05/2023 dated 17/07/2023: Clarification on Handling ITC Differences in GSTR-3B & 2A durig different periods from 01/04/2019 to 31/12/2021
Key Considerations and Amendments
It is important to note that, starting from January 1, 2022, no ITC will be allowed for supplies unless they are reported by suppliers in FORM GSTR-1 or IFF and communicated to the registered person in FORM GSTR-2B. This amendment was made by inserting clause (aa) into sub-section (2) of section 16 of the CGST Act and amending rule 36(4) of the CGST Rules.
To ensure clarity regarding cumulative conditions, a proviso was added to rule 36(4) of the CGST Rules through Central Tax Notification 30/2020 dated April 3, 2020. It states that the conditions of rule 36(4) shall be applicable cumulatively for the period from February to August 2020 and ITC shall be adjusted on a cumulative basis in the September 2020 return. Similarly, the second proviso was substituted through Central Tax Notification 27/2021 dated June 1, 2021, to apply the conditions cumulatively for the period from April to June 2021, with ITC adjusted on a cumulative basis in the June 2021 return.
Conclusion
It is important to note that these guidelines serve as clarifications and should be applied based on the specific circumstances of each case. The circular emphasizes their non-applicability for interpreting the provisions of the law. While these guidelines aim to ensure uniformity in implementation, businesses should remain vigilant and comply with the GST regulations.
For ongoing proceedings such as scrutiny, audit or investigation from April 1, 2019 to December 31, 2021 the circular’s instructions will be applicable. However, completed proceedings will not be affected. It is crucial to assess the impact of these guidelines on pending cases during the mentioned period, especially those undergoing adjudication or appeal proceedings.
By understanding the guidelines outlined in GST Circular 193/05/2023, businesses can effectively manage and rectify discrepancies in ITC claimed in FORM GSTR-3B compared to FORM GSTR-2A. Compliance with these guidelines will ensure a smooth GST filing process and avoid penalties or legal issues.
Disclaimer: While reasonable efforts have been made to ensure the accuracy and reliability of the information presented in this article, it should not be considered as professional tax advice or guidance. For compliance, the readers are advised to directly refer to the relevant laws, regulations and notifications issued by the appropriate authorities. |
CA Abhinav Aggarwal is a qualified Chartered Accountant and ICAI member since 2010. He holds vast experience in Audit, Income Tax & GST and is a passionate writer on the CA profession and related topics.