RESTRICTIONS IN INPUT TAX CREDIT – IS IT JUSTIFIED a brief analysis of rule 36(4)

Where a substantive unreasonableness is found in a taxing statute, it may have to be declared unconstitutional. It is also equally notable that taxation law is no exception to the doctrine of equal protection. Whether restriction of credit to the bonafide purchasing dealer for non-compliance by selling dealer is justified or not, would now be decided by the Courts.

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GST laws are ever evolving and the Government has been keen to plug revenue leakages by bringing in some key amendments in the GST Act and Rules. One such amendment was the introduction of new provisions vide Rule 36(4) of the CGST Rules, 2017. CBIC notified Central Goods and Services Tax (Sixth Amendment) Rules, 2019 vide Notification No. 49/2019 - Central Tax dated 09-10-2019 and made some important changes relating to Input Tax Credit (ITC) availment by inserting new sub rule (4) under rule 36 of the CGST Rules, 2017, stating that provisional credit can be claimed in GSTR 3 Bonly to the extent of 20% of eligible ITC reflected in the GSTR 2A. GST Council in its 38th meeting has reduced the provisional credit to 10% of the eligible credit reflected in GSTR2A with effect from 01.01.2020. This has created a lot of hue and cry amongst the tax payers, on the score that it effects a bonafide purchaser who has made a legitimate purchase, being denied the benefit of input tax credit despite having paid the consideration in full.

GST Law Relating to Availment of credit Section 16(2)(c) of the CGST Act, 2017 states that a registered person can avail the input tax credit if the tax charged in respect of the subject supply has been actually paid to the account of the Government.

Section 43A empowers to limit ITC in respect of ITC not showing in GSTR- 2A to 20% of ITC reflecting in GSTR-2A. The procedure for availing input tax credit in respect of outward supplies not furnished under sub-section (3) shall be such as may be prescribed and such procedure may include the maximum amount of the input tax credit which can be so availed, not exceeding ten per cent of the input tax credit available, on the basis of details furnished by the suppliers under the said subsection.