Existing provision of ITC

Section 16 of the CGST ACT 2017 states that following condition has to be fulfilled for availing of ITC:

a) Registered person should have Possession of tax invoice or debit note issued by a registered supplier.

b) Registered person has received the goods or services.

c) The tax charged has been actually paid by supplier to government either through ITC utilization or by cash.

d) Registered person has furnished return under section 39 i.e. GSTR3B.

All these conditions have to be satisfied for availing ITC.

Further Rule 36 of CGST Rules has restricted availing of ITC though the above conditions has been satisfied if the supplier has not filed their return or the invoice details, on which ITC is seek to be availed, has not been uploaded by supplier or not reflected in GSTR 2A or GSTR 2B. In such a case, it has been notified that 5% of ITC of those invoices which have been reflected in GSTR2A or GSTR 2B will be available for registered person though he has paid full tax for that.

IMPACT of this RULE: It has been amended in Rules in Financial year 2019-20 which has increased the calculation to be made for GST reconciliation at the end of every tax period. This has reduced the ITC avail of the tax period.

Amended provision

Now, on 21.12.2021 vide  Notification No. 39/2021 – Central Tax dated 21st December, 2021 effecting the tax law from 01.01.2022 which has introduced a sub clause (aa)  under the above mentioned clause 16(2)(a) that requires a registered person can avail tax credit on those invoices only which has been reflected in GSTR 2A or GSTR2B. ( it means 100% matching of invoice is required).

Above rule 36 though has been introduced through Rules has a lot of controversy for it application. It has allowed 5% of ITC of invoices which has been reflected in GSTR2A or GSTR2B for such invoices which has not been reflected in GSTR2A or GSTR2B. But now, this rule has been ineffective by introduction of the aforementioned clause under section 16 of CGST ACT 2017. Such insertion of clause now mandatorily requires every registered person to avail only those ITC which has been reflected in GSTR2A or GSTR2B.

Impact on Recipient of good or services

They now have become more dependent upon Supplier after they have made their payment for the purpose of avail of ITC. In case, supplier has not furnished the invoice on its GSTR1 then, the registered person won’t be able to avail ITC though it has paid its tax on purchase of item from the supplier.

Let’s understand this through following time line for April month.

• 29th of April: Buyer Mr. X has bought goods from Supplier Mr. Y worth Rs. 1,00,000/- having IGST of Rs. 18,000 paid on the date of invoice itself.
• Time of supply for the supply as per section 12 shall be date of invoice or the last date to issue invoice whichever is earlier (section 31 states last date to issue invoice is removal of goods for delivery to recipient), which is 29th of April.
• On 10th of May ,this invoice has to be furnished in GSTR1 by Mr. Y along with payment of tax to government.
• Case-1 : If Mr. Y has furnished the details and paid tax ,then, Mr. X will be entitled to avail ITC on furnishing his GSTR3B on 20th of May.
• Case 2: If Mr. Y do not furnish this invoice details on 10th of GSTR1, then Mr. X would have been entitled to avail 5% of ITC as per previous provision ( which is not relevant post 1.1.2022) while e.f. 1.1.2022, NO ITC could be availed on this invoice by MR. X. (vide Notification No. 39/2021 – Central Tax dated 21st December, 2021) through addition of condition as explained above in Section 16(2)(aa).

Stringent Impact on tax payers if there is any error in filing of GSTR1 and GSTR3B (any variances for taxable value declared in GSTR1 and GSTR3B.)

The word “Self assessed tax” has been clarified (by insertion of explanation to Section 75(12)) vide Notification No. 39/2021 – Central Tax dated 21st December, 2021.  

Its scope has been broadened to include such tax payable in respect of outward supplies, whose details have been submitted while furnishing return in FORM GSTR1 (Section 37 of CGST ACT 2017), but which have not been included in outward supplies so declared while furnishing GSTR3B under section 39 of CGST ACT 2017.

Impact over Registered Person

If in case he has furnished following details:

 For rest of Rs.9,00,000 shall be recovered from tax payer through recovery mechanism without any show cause notice.

So, he has mistakenly furnished GSTR1 with 10times his actual liability for the relevant period. This is now covered under definition of self-assessed tax and recovery mechanism will be initiated against such tax payer for the remaining amount which he has not paid, without any show cause notice, under section 73 or Section 74 of CGST ACT 2017.

This amendment seeks an alertness towards filing of return and correctness with the same or else he/she should be ready for face any attachment of his property or his bank account.

2. Service provided by Zomato, Swiggy or any other cloud kitchen operators for delivery of food through restaurant are now liable to pay tax at the rate of 5% under section 9(5) of CGST ACT 2017 and no ITC will be allowed to those service providers. This is not a reverse charge mechanism and hence recipient are not required to pay tax on it. (Notification No. 17/2021- Central tax dt. November 18, 2021).

Impact on service recipient

Mr. X on ordering food through zomato now after implementation of this notification has to pay tax @5% and there will be no impact on tax payers. However, additional compliances will be required by restaurant service provider who has to maintain separate records one for regular business and other through Zomato or swiggy.

Impact on Zomato/ swiggy:

Now (w.e.f 1.1.2022) apart from collection of TCS @1%, has also to pay for its supply of service@ 5% and also issue its own tax invoice for the service provided though actual small supplier is not registered under GST due to low turnover (threshold limit).

Amendment in schedule II of CGST (Notification No. 39/2021 – Central Tax dated 21st December, 2021)

Para 7 states that following will be considered as Supply of goods read as:

Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.

This para has now been omitted and a new clause (aa) has been inserted under section 7 of CGST ACT 2017 retrospectively and thus the definition of SUPPLY has now been broadened to include activities or transactions of supply of goods or services between any person (other than individual) to its members or constituent or vice-versa for cash, deferred payment or other valuable consideration.

Now both supply of Goods as well as services have been covered by this amendment. This amendment has overridden the principal of mutuality concept which was held under case (in service tax regime) State of West Bengal & Ors. V. Calcutta club limited whereby Hon’ble Supreme court has held that there cannot be sale of goods or provision of services between the incorporated clubs or association and its members owing to principal of mutuality which states that clubs and its members are same person.