It was represented by trade and industry that in order to cater to their working capital requirements during this pandemic situation prevailing in the Country, the operation of Rule 36(4) of CGST Rules, 2017 restricting the availment of input tax credit upto 10% of the eligible input tax credit reflected in GSTR-2A should be suspended. The government considered the suggestion and provided relaxation to comply with the requirement of Rule 36(4) vide notification no. 30/2020- Central Tax dated 03.04.2020, by way of inserting a proviso to rule 36(4) allowing the assessees to avail input tax credit irrespective of reflection of such credit in their GSTR-2A during the period from February 2020 to August 2020 and make cumulative adjustment in the return filed for the month of September, 2020. This amendment was a sigh of relief to the assessees but the clarification issued by circular no. 135/05/2020 dated 31.03.2020 poured cold water on the efforts to provide liquidity to the businesses during this difficult time.
The circular no. 135/05/2020 dated 31.03.2020 clarified that the refund of accumulated ITC shall be restricted to the ITC as per those invoices, the details of which are uploaded by the supplier in FORM GSTR-1 and are reflected in the FORM GSTR-2A of the applicant. The circular seek to take away the benefit provided by the earlier circular no. 125/44/2019-GST, dated 18.11.2019 allowing the assessees to claim refund of invoices not reflected in GSTR-2A by uploading/furnishing hard copies to the refund sanctioning authority. Hence, the government provided relaxation as regards operation of Rule 36(4) during the period from February 2020 to August 2020 but at the same time snatched the facility to claim refund of invoices not reflected in GSTR-2A by the assessees, in total contradiction to the notification no. 30/2020- Central Tax dated 03.04.2020.
It is worth mentioning that restricting refund of ITC to the invoices uploaded by supplier in 2A is again in violation of Rule 89 which takes into account full ITC for a period. The Rule 89 of CGST Rules, 2017 prescribing formula also defines the meaning of “Net ITC” as input tax credit availed on inputs during the relevant period and does not distinguishes the input tax credit not reflected in GSTR-2A.
Moreover, if the refund claim is being denied of certain invoices which were not reflected in GSTR-2A, the question arises is that how will the assessee claim refund of such invoices subsequently when such invoices are reflected in their GSTR-2A at future point of time. There is no answer for this inbuilt hardship faced by the assessee on implementing the clarification issued by the circular. The circular is also silent on the procedure to claim refund of input tax credit in cases where the invoices not reflected in GSTR-2A have been subsequently uploaded by the supplier at future point of time. In our opinion, the circular cannot take away the right of assessee to claim refund merely for non-reflection of invoices in GSTR-2A, particularly when the provision contained in Rule 36(4) of CGST Rules, 2017 has been suspended during February, 2020 to August, 2020 for cumulative adjustment in the return filed for the month of September, 2020.
The government should ensure that the clarifications issued by way of circular should is not contrary to the other provisions of law. When the notification no. 30/2020- Central Tax dated 03.04.2020 is not restricting availment of input tax credit of invoices not reflected in GSTR-2A, how can the circular restrict refund of accumulated input tax credit for non-reflection of such invoices in GSTR-2A?
It is pertinent to mention that there have been numerous judgements in the erstwhile regime that have been affirmed by Supreme Court wherein it has been concluded that circulars which are contrary or inconsistent with the statutory provisions are not binding on departmental officers also. Reliance may be placed on the decision given in the case of Commissioner of Central Excise, Bolpur v/s M/s Ratan Melting & Wire Industries [2008-TIOL-194-SC-CX-CB] wherein it was held that a circular which is contrary to the statutory provisions has no existence in law. This circular will create havoc among taxpayers as already refund sanction process consumes considerable time and efforts of the assessee and such restrictions will block the working capital for indefinite period.
In our opinion, when the vires of Rule 36(4) is being challenged in the Delhi High Court and Gujarat High Court and is sub-judice, it is probable that the clarification restricting refund claim for the invoices reflected in GSTR-2A will also be challenged before the Courts.