Understanding GST Rule 37A: Input Tax Credit Reversal for Supplier Payment Failures

GST Rule 37A mandates that registered purchasers of goods and services must reverse any Input Tax Credit (ITC) previously claimed if their suppliers do not remit the corresponding taxes into their GSTR-3B within the stipulated timeframe. This article details the rule's applicability, associated timelines, and proper procedures.

GST Rule 37A ensures compliance with tax payment conditions, stipulating that buyers should not retain ITC if their suppliers fail to deposit the collected tax with the government.

Context for GST Rule 37A

CGST Rule 37A was officially announced to align with clauses (c) and (d) of Section 16(2), in conjunction with Section 41(2) and its proviso, under the CGST Act.

Clause (c) allows buyers to claim ITC for a supply only if the tax specified on the invoice has been remitted to the government by the supplier, either through cash or by utilizing ITC.

Conversely, clause (d) establishes an additional prerequisite for buyers to claim ITC: their respective supplier must have submitted the relevant GSTR-3B.

Section 41(2) specifies that recipients must reverse ITC claims if the supplier has not deposited the taxes. The proviso permits the buyer to reclaim such reversed ITC at a later stage once the supplier makes the tax payment. However, before Rule 37A of CGST was enacted, there were no specific CGST Rules governing the procedure and timelines for these actions.

Who Must Comply with CGST Rule 37A?

All regular taxpayers who file GSTR-3B and are eligible to claim input tax credit are required to comply with CGST Rule 37A. This includes taxpayers who file GST returns monthly (using Forms GSTR-1 and GSTR-3B) or quarterly (using the Invoice Furnishing Facility (IFF), and Forms GSTR-1 and GSTR-3B).

Additionally, entities involved in interstate (IGST) and intrastate (CGST and SGST) purchases, who intend to claim ITC, must adhere to Rule 37A of GST. Consequently, composition taxable persons are exempt from this rule. Furthermore, purchases made under a reverse charge mechanism do not fall under this rule, as the responsibility for tax payment rests with the buyer or recipient themselves.

Explanation of GST Rule 37A Provisions

Buyers are required to reverse ITC claimed on supplies declared in the GSTR-1 or Invoice Furnishing Facility (IFF) but not subsequently reported in GSTR-3B by the seller. The following conditions must be met for GST Rule 37A to apply:

• The buyer has claimed ITC on the invoice based on the details visible in GSTR-2B.
• The supplier has not deposited the tax pertaining to that invoice or debit note.
• The supplier has not submitted the GSTR-3B that corresponds to the invoice or debit note.

In essence, this rule comes into effect when the total value of supply reported in the supplier's GSTR-1 exceeds that in their GSTR-3B, or when an invoice declared in GSTR-1 is omitted from the supplier's GSTR-3B. The two provisos concerning interest applicability and the provision for re-claims are elaborated in subsequent sections of this document.

Procedure for ITC Reversal under Rule 37A of GST

Initially, the recipient would have claimed the ITC reflected in GSTR-2B by reporting it in Table 4(A)(5) of Form GSTR-3B. If CGST Rule 37A applies, the recipient must reverse this claimed ITC by declaring it in Table 4(B)(2) of Form GSTR-3B. No interest is incurred on ITC reversal if completed within the stipulated deadline. However, interest becomes applicable if the ITC reversal occurs after this defined period, as explained in the subsequent section.

Deadlines for ITC Reversal under GST Rule 37A

Buyers are not required to reverse ITC immediately upon discovering that their supplier's GSTR-3B was underreported for the ITC. They have until a specified date in the year following the financial year to which the ITC pertains. The timelines outlined under Rule 37A of GST are summarized in the table below:

Taxpayers might find the GSTR-3B tax periods referred to by the rule confusing. Therefore, we can refer to the government's clarification, which revised the annual time limit for claiming ITC to November 30th of the year following the financial year.

• For monthly GSTR-3B filers (supplier): The GSTR-3B for the August return period of the year after the financial year. For example, August 2023 for FY 2022-23.
• For quarterly GSTR-3B filers under QRMP scheme (supplier): The GSTR-3B for the quarter ending June of the year after the financial year. For example, April-June 2023 quarter for FY 2022-23.

The GSTR-3B filed on or before November 30th implies:

• For monthly GSTR-3B filers (buyer): The GSTR-3B for the October return period of the year after the financial year. For example, October 2023 for FY 2022-23.
• For quarterly GSTR-3B filers under QRMP scheme (buyer): The GSTR-3B for the quarter ending September of the year after the financial year. For example, July-September 2023 quarter for FY 2022-23.

Effective Date of GST Rule 37A

GST Rule 37A was integrated into the CGST Rules on December 26th, 2022, through CBIC notification 26/2022. It became effective for invoices or debit notes issued on or after December 27th, 2022, the date of its publication in the official gazette. Consequently, this rule applies from the financial year 2022-23 onwards. For its initial implementation in FY 2022-23, the following dates are crucial for actions:

Consequences of Non-Compliance with GST Rule 37A

Buyers who fail to adhere to CGST Rule 37A will receive a GST demand notice, requesting payment of the tax and interest commensurate with the excess ITC claimed. Interest is levied in accordance with Section 50 of the CGST Act, at an annual rate of 24% on the excessively claimed and utilized ITC, calculated from the date of utilization until the payment date. It is important to note that such interest is also applicable if the buyer reverses ITC after November 30th of the financial year.

Reclaiming Reversed ITC under GST Rule 37A

GST Rule 37A offers a provision for buyers who genuinely missed claiming their ITC due to a supplier's error. They are permitted to reclaim reversed ITC even beyond the aforementioned time limit if the corresponding supplier:

• Files the GSTR-3B for the specific period after September 30th of the year following the financial year, OR
• Reports the previously missed invoices or debit notes in any GSTR-3B filed after September 30th of the year following the financial year.

AND

• Remits tax on such invoices or debit notes after September 30th of the year following the financial year.

The recipient can reclaim or re-avail the ITC in Table 4(D)(1) of Form GSTR-3B during any subsequent return period. This reclamation is allowed despite the restrictions imposed by Section 16(4) of the CGST Act.