New
March 21, 2023
By
Harshini

No Immediate ITC Reversal for Non-filing of GSTR-3B by suppliers

The Central Board of Indirect Taxes and Customs (CBIC) has issued a circular clarifying that there will be no immediate reversal of Input Tax Credit (ITC) on account of non-filing of GSTR-3B by the supplier. This clarification has been issued in the context of recent legal challenges and representations received from taxpayers regarding the interpretation of Section 16(2)(c) of the Central Goods and Services Tax (CGST) Act, 2017.

Section 16(2)(c) of the CGST Act, 2017 states that 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 following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

The circular clarifies that Section 16(2)(c) does not provide for immediate reversal of ITC on account of non-filing of GSTR-3B by the supplier. The provision is only a restriction on the recipient's entitlement to ITC after the due date of filing of GSTR-3B for the month of September following the end of the financial year. The recipient of goods or services is required to ensure that the supplier has filed GSTR-1 and GSTR-3B, failing which the recipient's ITC may be restricted after the due date.

The circular also clarifies that the reversal of ITC should be done only after allowing the recipient to take all reasonable steps to ensure that the supplier has discharged his tax liability. This would include reminding the supplier to file the returns, obtaining a written confirmation from the supplier that he has filed the returns, and also checking the supplier's GSTR-2A to ensure that the supplier has shown the relevant supplies.

In summary, the circular clarifies that there will be no immediate reversal of ITC on account of non-filing of GSTR-3B by the supplier, and that the recipient of goods or services should take all reasonable steps to ensure that the supplier has discharged his tax liability before claiming ITC.

Impact Analysis of Rule 37A: No Immediate ITC Reversal for Non-filing of GSTR-3B by suppliers

The recent introduction of Rule 37A in the Central Goods and Services Tax (CGST) Rules, which provides for the restriction of Input Tax Credit (ITC) in case of non-filing of GSTR-3B by suppliers, has been a matter of concern for taxpayers. However, the recent circular issued by the Central Board of Indirect Taxes and Customs (CBIC) clarifying that there will be no immediate reversal of ITC has brought some relief to taxpayers.

The impact analysis of Rule 37A can be viewed as follows:

Compliance by suppliers: With the introduction of Rule 37A, suppliers are likely to be more vigilant in filing their GSTR-3B on time, as non-filing could lead to a restriction of ITC for the recipient of the goods or services. This may lead to increased compliance by suppliers and ensure that tax revenues are collected by the government on time.

Increased documentation: The circular issued by CBIC requires the recipient of goods or services to take all reasonable steps to ensure that the supplier has discharged their tax liability before claiming ITC. This could lead to increased documentation and record-keeping requirements for the recipient of goods or services, as they would need to ensure that they have taken all necessary steps to check the supplier's tax compliance.

Cash flow impact: The restriction of ITC could lead to a cash flow impact for the recipient of goods or services, as they may not be able to claim the ITC until the supplier files their GSTR-3B. This could impact the working capital of the recipient and their ability to invest in their business.

Dispute resolution: The circular issued by CBIC requires the recipient of goods or services to take all reasonable steps to ensure that the supplier has discharged their tax liability before claiming ITC. This could lead to disputes between the supplier and recipient, as the recipient may not be satisfied with the steps taken by the supplier to discharge their tax liability.

Conclusion

Overall, while the recent circular issued by CBIC has provided some relief to taxpayers, the introduction of Rule 37A and the associated compliance requirements could lead to increased documentation and record-keeping requirements, as well as cash flow impacts for taxpayers.

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