So recently this new Rule 36(4) of CGST Rules, 2017 had inserted vide
Notification No. 49/2019, which says that:
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.
In simple words, an assesse can avail ITC up to a maximum of 120% of Credit as
showing in its GSTR 2A or the credit as per its Books of Accounts for a
particular month whichever is higher.
For a small dealer whose purchases comprises majorly from medium scale dealer or
small manufacturers and these sellers majorly file there GSTR 1 return on
This means for the first 2 months of any quarter (and sometimes the 3rd month
also), the small dealer won’t get the full ITC of its purchases which further
means that he has to put in more working capital in its firm to pay the
difference of output tax liability and eligible input tax credit taken as per
This in the current scenario is a bit harsh on small and medium dealers, as the
small dealer will now tend not to buy their products from the dealers who file
their GSTR on Quarterly basis.
As on 25 November 2019, there are around 1.22 crore-registered taxpayer as per
the gstn.org website. Now suppose around 20 percent of these assesses file their
GSTR 1 on Quarterly basis and of that 20 percent around half is made to another
seller a huge amount of ITC is blocked because the GSTR 2A of the purchasing
party will not show the credit for the first 2 months of any quarter (and
sometimes the 3rd month of the quarter also).
In addition, this new rule will overburden the accountants and the dealers to
maintain another working of how much ITC is claimed by them in their GSTR 3B and
how much ITC is pending to be claimed. This rule will definitely going to
increase the revenue of Government for a short span of time but it may also
going to hamper the trust and long-term business of small dealers.
Possible amendments is required so that these small dealers can avail the
correct ITC for the previous month and they do have to wait for 2-3months for
In GST law also there is no mention of filing of GSTR 1 on Quarterly basis which
if implemented in current scenario of Rule 36(4) would definitely give good
result but as of current date scenario this is a big trouble for SME sector.
A debate on the above topic is highly recommended and will provide a good output
for the above mentioned problems.