CLARIFICATION ON RULE 36(4) FOR THE MONTHS OF FEBRUARY 2020 TO AUGUST 2020

CBIC had issued a circular for clarification on Rule 36(4) and stated that ITC would be available to  taxpayer to the extend of 120% of invoices or debit notes, the details of which have been uploaded by the supplier. Later on this capping limit of 120% was reduced to 110%.

Due to Covid-19 Pandemic, this capping limit was postponed for the tax period February to August 2020 vide notification 30/2020- Central Tax dated 03.04.2020. However this capping limit shall apply cumulatively for the tax period February to August 2020 and the return in FORM GSTR-3B for the tax period September, 2020 shall be furnished with the cumulative adjustment of input tax credit for the said months.

CBIC has issued Circular No. 142/12/2020-GST dated 09.10.2020 and clarified that the earlier prescribed capping limit shall still remain applicable, except for the cumulative application as prescribed in proviso to sub-rule (4) of rule 36 of the CGST Rules. Accordingly, all the taxpayers are advised to ascertain the details of invoices uploaded by their suppliers under sub-section (1) of section 37 of the CGST Act for the periods of February to August, 2020, till the due date of furnishing of the statement in FORM GSTR-1 for the month of September, 2020 as reflected in GSTR-2A.

Taxpayers shall reconcile the ITC availed in their FORM GSTR-3Bs for the period February to August, 2020 with the details of invoices uploaded by their suppliers of the said months, till the due date of furnishing FORM GSTR-1 for the month of September, 2020. The cumulative amount of ITC availed for the said months in FORM GSTR-3B should not exceed 110% of the cumulative value 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 of the CGST Act, till the due date of furnishing of the statements in FORM GSTR-1 for the month of September, 2020.

It may be noted that availability of 110% of the cumulative value 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 of the CGST Act does not mean that the total credit can exceed the tax amount as reflected in the total invoices for the supplies received by the taxpayer i.e. the maximum credit available in terms of provisions of section 16 of the CGST Act.

The excess ITC availed arising out of reconciliation during this period, if any, shall be required to be reversed in Table 4(B)(2) of FORM GSTR-3B, for the month of September, 2020. Failure to reverse such excess availed ITC on account of cumulative application of sub-rule (4) of rule 36 of the CGST Rules would be treated as availment of ineligible ITC during the month of September, 2020.

We can understand the above rule with the help of an example:

Tax Period	Eligible ITC	ITC Availed by Taxpayer	Invoices uploaded by the supplier till due date of GSTR 1 of September,2020
Feb 2020	300	300	270
March 2020	400	400	380
April 2020	500	500	450
May 2020	350	350	320
June 2020	450	450	400
July 2020	550	550	480
August 2020	200	200	150
Total	2750	2750	2450

      Maximum ITC available in terms of Rule 36(4) will be Rs. 2695 [2450*110%]. Taxpayer has availed ITC of Rs. 2750. Therefore ITC of Rs. 55 [2750-2695] would be required to be reversed in Table 4(B)(2) of Form GSTR 3B for the month of September 2020.

Note: Capping of 10% shall be applied independently for September 2020.

SOURCE : GST CIRCULAR DATED  09.10.2020

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