Understanding the Proposed and Later Eliminated Section 43A for GST Returns and Input Tax Credit

This article provides a comprehensive overview of Section 43A of the Central Goods and Services Tax (CGST) Act, a provision that was once proposed for managing GST returns and input tax credit (ITC). It is crucial to note that while this section aimed to introduce significant changes, it was ultimately not notified and has since been eliminated from the CGST Act, with new regulations governing ITC claims now in effect.

Recent Legislative Changes Affecting Input Tax Credit

Recent updates have significantly reshaped the landscape of input tax credit claims under GST:

• February 1st, 2022 (Budget 2022 Updates):
  • Input Tax Credit can no longer be claimed if it is restricted within the GSTR-2B form, as stipulated under Section 38.
  • The deadline for claiming ITC on invoices or debit notes for a financial year has been revised. It is now the earlier of two dates: November 30th of the subsequent year, or the actual date of filing the annual returns.
  • Section 38 has been thoroughly reformed to 'Communication of details of inward supplies and input tax credit,' aligning with Form GSTR-2B. This updated section establishes the procedure, timing, conditions, and limitations for ITC claims, effectively discontinuing the previous two-way communication process in GST return filing on the suspended Form GSTR-2. It also ensures taxpayers receive information regarding both eligible and ineligible ITC for their claims.
  • Section 41 has also been revamped, removing references to provisional ITC claims and instead outlining conditions for self-assessed ITC claims.
  • Significantly, Sections 42, 43, and 43A, which previously pertained to provisional ITC claim processes, matching, and reversals, have been eliminated.
• December 29th, 2021: CGST Rule 36(4) was amended to remove the provision for claiming an additional 5% ITC beyond what is reflected in GSTR-2B. From January 1st, 2022, businesses can only claim ITC if it has been reported by their supplier in GSTR-1/IFF and consequently appears in their GSTR-2B.
• December 21st, 2021: Effective January 1st, 2022, ITC claims are permissible only if the credit is visible in GSTR-2B. This change means taxpayers can no longer avail the 5% provisional ITC under CGST Rule 36(4); instead, all claimed ITC values must be accurately reflected in GSTR-2B.

The Concept of Section 43A (Proposed)

Section 43A was an addition to the Central Goods and Services Tax Act, 2019, intended to formalize the process for furnishing returns and availing input tax credit. Its insertion aimed to operationalize anticipated changes in the GST return reporting framework. The GST Council, during its 27th meeting, had initially put forward a simplified return filing structure for taxpayers, which Section 43A was designed to facilitate.

Past GST Return Filing System

Historically, taxpayers were required to file two monthly GST returns: GSTR-3B and GSTR-1. The filing of GSTR-2 and GSTR-3 had been suspended for some time, leading to the search for a more streamlined system.

The Vision for a Simplified Return Scheme (Suspended)

A proposed new scheme, which was later suspended, envisioned a system where every registered taxpayer would file only one monthly return. This scheme included provisions for real-time invoice uploads, allowing suppliers to upload invoices at any point during the month before a specified cut-off. These invoices would then be visible to buyers immediately.

During an interim transition period, buyers would have been eligible to claim credit on a self-declaration basis, even if the supplier had not yet uploaded all invoices. The overarching goal of this new GST return scheme was to significantly simplify the procedure for return filing.

Key Provisions of the Proposed Section 43A

While Section 43A was never fully implemented, its proposed provisions outlined several key points:

• Section 43A was designed to operationalize new GST return procedures, which are currently suspended. The specific rules and detailed guidelines were expected to be notified, providing taxpayers with advance notice of the exact requirements.
• A significant aspect of Section 43A was its 'notwithstanding' clause, indicating that its provisions would have overridden certain parts of the CGST Act. This included Section 16(2) (conditions for availing ITC), Section 37 (details of outward supplies), and Section 38 (details of inward supplies). In essence, Section 43A aimed to offer taxpayers flexibility, potentially allowing them to provisionally claim ITC even if other conditions were not met. However, the Central Board of Indirect Taxes and Customs (CBIC) never notified how Section 43A would impact GST returns.
• Every registered person would have had the ability to amend, add, or delete details of inward supplies within their monthly returns.
• A mechanism was proposed to allow recipients to avail input tax credit even if the supplier failed to provide adequate or correct details in their returns, or if the supplier did not upload invoices.
• Under this provisional ITC claim, the credit available would have been capped at 5% (previously 10% until December 31st, 2020, and 20% prior to that) of the ITC accessible to the recipient based on details already uploaded by the supplier. For example, if a supplier uploaded sales with ITC totaling Rs. 1,00,000, the recipient could claim up to Rs. 1,00,000 plus an additional Rs. 5,000 (5% provisional ITC) for invoices yet to be uploaded by the supplier. This provisional claim would be subject to subsequent invoice details provided by the supplier.
• The supplier and recipient could be held jointly and severally liable for both output tax payment and ITC availed if a return was not filed, but details of outward supplies were uploaded for credit claiming purposes.
• Specific recovery procedures for such output tax or ITC were to be detailed. However, recovery proceedings could be waived if the amount involved did not exceed INR 1,000.
• Rules would have been issued to provide specifics on how outward supply details should be furnished in particular scenarios.

It is important to reiterate that while Section 43A was considered a significant relief for taxpayers, it was ultimately not notified and therefore never became applicable.

Current Applicable Provisions for Input Tax Credit

In the absence of Section 43A, taxpayers are currently mandated to claim Input Tax Credit in their GSTR-3B only up to the amount reflected in their GSTR-2B/GSTR-2A. This requirement is outlined in Section 16(2)(aa) of the CGST Act, effective from January 1st, 2022. Prior to this date, taxpayers had the allowance to claim an additional 5% ITC alongside the amount appearing in GSTR-2B when filing their GSTR-3B.