Does The Invoice on Your GSTR 2B Matter?

Section 16 of the CGST Act, 2017 pre-budget status

Section 16(1) of the CGST Act, 2017 is quoted below

Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Section 16(2) specifies the conditions.

Section 16(2) of the CGST Act, 2017 is quoted below

Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,

1. he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
2. he has received the goods or services or both. Explanation. - For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services-
3. where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
4. where the services are provided by the supplier to any person on the direction of and on account of such registered person;
5. subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
6. he has furnished the return under section 39:

Section 41 of the CGST Act, 2017 is quoted below.

Claim for and provisional receipt of an input tax credit

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger.

(2) The credit referred to in sub-section (1) shall be utilised only for payment of self- assessed output tax as per the return referred to in the said sub-section. Even if the particular supplier has not actually paid the ITC to the Government, the Assessee is qualified to receive it, and it will be credited on a temporary basis.

Let's analyze Pre-budget Section 16 (2) of CGST Act, 2017

The assessee was qualified for ITC if he met all of the requirements listed in this sub-section, i.e.

1. Invoices or debit notes in possession
2. Goods or Service Receipt
3. Submission of a return pursuant to Section 39
4. Subject to Section 41, payment of tax by the supplier to the Government. Section 41 allows the Assessee to avail ITC even if the same has not been paid by the Supplier to the Government and it will be accepted provisionally.

When we closely examine the situation, we see that there is no express need that the Supplier provide the information of the invoices or debit notes in the statement of Outward Supplies under Section 37, i.e. GSTR 1.

Date - October 9, 2019

Later in October 2019 Rule 36(4) was introduced vide Notification No. 49/2019

Rule 36 (4) of the CGST Act, 2017 is quoted below

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.

Let's analyze Rule 36 (4) of CGST Act, 2017

The government, under Rule 36(4) of the CGST Rules, limited the recipient's Input Tax Credit.

• By enabling him to claim valid ITC only for invoices or debit notes for which the details have been posted by the suppliers under sub-section (1) of section 37 (+) 20% of invoices or debit notes that have not been uploaded by the suppliers (or)
• The actual qualifying ITC as determined by the Purchase Register, whichever is less.

Date - December 26, 2019

Notification No. 75/2019 modified Rule 36(4) as quoted below.

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.

Analysis

Where the government reduced the limit of 20% to 10% for claiming an Input tax credit with effect from January 1, 2020.

Date - December 22, 2020

Notification No. 94/2020 further modified Rule 36(4) as quoted below.

Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been furnished by the suppliers under sub-section (1) of section 37 in Form GSTR 1 or using the invoice furnishing facility, shall not exceed 5 percent. 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.

Analysis

Where the government reduced the limit of 10% to 5% for claiming an Input tax credit with effect from January 1, 2021.

Date - February 1, 2021

The amendment proposed under section 16, sub-section (2), after clause (a) of the Central Goods and Services Tax Act, 2017 vide section 100 of Finance Bill, 2021, which was tabled in the Lok Sabha as under

In section 16 of the Central Goods and Services Tax Act, in sub-section (2), after clause (a), the following clause shall be inserted, namely: - -

"(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;" (Finance Act, 2021)

Date - December 21, 2021

This provision is made public by Notification No. 39/2021 CT dated December 21, 2021.

The effect of inserting Clause (aa) of Section 16, Subsection (2)

The government has further limited the recipient's Input Tax Credit by inserting Clause (aa) following Clause (a) of Subsection (2) of Section 16.

Let's analyze Section 16 (2) (aa) of CGST Act, 2017

Section 16 (2) of CGST Act, 2017

Additionally, one new condition has been added to the list, which indicates that ITC may be claimed by the receiver if the condition "Supplier has supplied the information of Invoices or Debit Notes referred to in Section 16(2)(a) in Form GSTR 1" is met.

This indicates that the Recipient is only entitled for ITC that is matched with GSTR 2B. This places a significant burden on taxpayers since Working Capital is restricted to the level of Invoices and Debit Notes given by the Supplier in Form GSTR 1 / IFF.

Date - December 29, 2021

Notification No. 40/2021 furthermore modified Rule 36(4) as quoted below.

No input tax credit shall be availed by a registered person in respect of invoices or debit notes the details of which are required to be furnished under subsection (1) of section 37 unless,

(a) the details of such invoices or debit notes have been furnished by the supplier in the statement of outward supplies in FORM GSTR-1 or using the invoice furnishing facility; and

(b) the details of such invoices or debit notes have been communicated to the registered person in FORM GSTR 2B under of rule 60

Date - January 1, 2022

Let's analyze Post-budget Section 16 (2) of CGST Act, 2017

As a result, with effect from January 1, 2022, the requirements for claiming Input Tax Credit under the CGST Act, 2017 are as follows -

1. Invoices or debit notes in possession
2. The supplier provided the information of the aforesaid invoice or debit note in the statement of outward supplies, and such details were reflected to the recipient in the manner stipulated in Section 37 of the CGST Act, 2017.
3. Goods or Service or both received
4. The tax levied in relation to such supply has been paid to the government and
5. The return was submitted by the recipient in accordance with Section 39 of the CGST Act, 2017.

Conclusion

Thus, taxpayers would only be able to claim ITC on invoices that have been uploaded by the supplier in GSTR 1 / IFF and reported to the registered person in Form GSTR 2B.