Eligibility of ITC: Comprehensive Analysis of Amendments Carried Out by Finance Act, 2021 and 2022

There are various changes made in Section 16, 37 and 38 vide Finance Act, 2021 and 2022 to restrict the eligibility for the ITC. In this article, we will present detailed analysis of amendments carries out by the Finance Act, 2021 and 2022 and Rules thereunder.


Summary of the amendments

S.No.

Corresponding Section of CGST Act

Summary of Provisions

Effective Date

1

16 (2)(aa)

To become eligible for ITC, Details of Invoices/Debit Notes must be uploaded by the Supplier in GSTR-1 filed under Section 37.

01.01.2022 (Finance Act, 2021)

2

16(2)(ba)

The details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted.

01.10.2022

(Finance Act, 2022)

3

16(4)

A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September (thirtieth day of November) following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.

01.10.2022

(Finance Act, 2022)

4

38

Restrictions on eligibility of ITC in respect of supplies declared by following Suppliers even if it is available in 2A/2B

  • Supplier who has taken new registration for such period of registration as may be prescribed.

  • Supplier who has defaulted in payment of Tax and default continuing for prescribed period.

  • Supplier who has declared more tax liability in GSTR-1 than paid in GSTR-3B etc. (Complete provisions are given in article below) etc.

Note:

a. These restrictions are applied from Supplier Perspectives i.e. Supplier of these restricted supplies

Rules related to Section 38 are yet to be notified.

01.10.2022

(Finance Act, 2022)

First of all we need to understand the difference between Section 16 (2) (aa) and 16(2)(ba). In case of Section 16(2)(aa) intent of law is to give statutory backing to the provisions for validity of demand in case of difference between what ITC has been availed in 3B by the Tax Payers and what ITC is available in their respective 2A.


By Section 16(2)(ba), Law restricts the availability of ITC even if it is available in 2A. Considering the restrictions listed in Section 38 like where Supplier has just filed the GSTR-1 but has not filed the GTSR-3B or like Supplier is discharging the Output GST liability by using mainly ITC, then Law empowers the Government to restrict the ITC in respect to supplies by these suppliers even if it is available in 2A/2B. Therefore, intent of law in respect of Section 16(2)(ba) appears to be to sharpen the war against Fake ITC.


Section 16(4) has been amended to give additional window of approx one more month and 10 days or so to avail the ITC in respect of invoices pertaining to previous Financial Year. (Note: Here last date is returns filed up to 30 November not the due date of return of November).


Legal Language of the Provisions


Section 16(2)(aa)


“(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;”.


Section 16(2)(ba)

“(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;”;


Section 16(4)

A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September (thirtieth day of November) following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.


Section 38

(1) The details of outward supplies furnished by the registered persons under sub-section (1) of section 37 and of such other supplies as may be prescribed, and an auto-generated statement containing the details of input tax credit shall be made available electronically to the recipients of such supplies in such form and manner, within such time, and subject to such conditions and restrictions as may be prescribed.

(2) The auto-generated statement under sub-section (1) shall consist of––

(a) details of inward supplies in respect of which credit of input tax may be available to the recipient; and

(b) details of supplies in respect of which such credit cannot be availed, whether wholly or partly, by the recipient, on account of the details of the said supplies being furnished under sub-section (1) of section 37,––

(i) by any registered person within such period of taking registration as may be prescribed; or

(ii) by any registered person, who has defaulted in payment of tax and where such default has continued for such period as may be prescribed; or

(iii) by any registered person, the output tax payable by whom in accordance with the statement of outward supplies furnished by him under the said sub-section during such period, as may be prescribed, exceeds the output tax paid by him during the said period by such limit as may be prescribed; or

(iv) by any registered person who, during such period as may be prescribed, has availed credit of input tax of an amount that exceeds the credit that can be availed by him in accordance with clause (a), by such limit as may be prescribed; or

(v) by any registered person, who has defaulted in discharging his tax liability in accordance with the provisions of sub-section (12) of section 49 subject to such conditions and restrictions as may be prescribed; or

(vi) by such other class of persons as may be prescribed. ”.


Note: Rules pertaining to Section 38 are yet to be notified.


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