Conversion of Old Lapsed ITC Into Available Genuine ITC

Due to various reasons, the taxpayers may not be able to claim the Input Tax Credit of Various Inputs and Input Services which might be the Assessee has not recorded in his books of accounts or any other reason due to which the Taxpayer is not able to claim or book certain Invoices.

Here is the List of Some of the Prime Facie Events due to which the ITC get Lapsed: –

1. Incorrect or No GSTR 2A Reconciliation with the Books of Accounts

2. Invoices Reflected in GSTR 2A but the Counter Filling Status is NO

3. Invoices recorded in the books of Accounts but not Reflected in the GSTR2A the Supplier has not uploaded in his GSTR-1

4. Certain Input services which are recorded on an Aggregate basis, but their Invoices are reflected in GSTR 2A invoice wise due to which the Credit of such Input Services has not been claimed in the Returns e.g. Bank Charges.

To Understand in a better manner, we must refer to some Sections of the CGST Act, 2017 regarding their Rules and Regulations Thereof and their Meaning thereof: –

Section 16(4) Time Limit of Availment of Input Tax Credit: –  A registered person shall not be entitled to take the input tax credit in respect of any invoice or debit note for the 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 the financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

Explanation of 16(4): – “Input tax credit” under section 16(4) includes ITC in respect of RCM also and hence it is implied that ITC in respect of payments made for RCM requires to be taken within the time frame stipulated. The Time Frame for the same will be the due date for filing GSTR-3B for the month of September following the end of the financial year or the Date of Filing of Annual Return for that Financial Year Whichever is earlier.

Certainly, the eligible ITC will automatically lapse if the ITC has not been taken in Credit in GSTR-3B and not credited to Credit ledger of the dealer, within the time limit as specified above.

To Understand this the whole process of Conversion we can take an example to understand the whole Procedure without Contravening any provision or rules of the GST Act.

There are 2 Parties Mr. X. (Supplier) and Mr. Y. (Recipient). We will be discussing the whole example form the Viewpoint of Mr. Y (being the Recipient).

Note: -It is assumed that the September 2019 return GSTR 3B has been filed and the Annual Return for FY 2018-19 has not been filed yet as the Due date has been extended to 30.09.2020

Mr. Y. has Invoices relating to the financial year 2018-19 on which he has not taken credit during the financial year and the same been found only after filing GSTR-3B for the month of September 2019, but before filing the annual return in GSTR-9 and 9C.

In this whole Situation, certainly, the eligible ITC will automatically lapse in favor of revenue, just because of the reason that the dealer has not taken credit in GSTR-3B and not credited the same in Credit ledger caused and unjust hardship on the Assessee.

What Consultants have to do to convert the lapsed ITC into genuine ITC to avail the Credit???

Mr. Y has Invoices relating to the financial year 2018-19, partly in the month of December 18 for the ITC value of Rs.45,000/- and partly in Jan19 for the ITC value of Rs.60,000/- on which he has not taken credit and the same been found only after filingGSTR-3B for the month of September 2019, but before filing the annual return in GSTR-9 and 9C at the time of reconciliation for Filing of Annual Return.

Adjustments to be made: –

1. In the FY 2019-20 select a group of such consecutive’s months In which the ITC availed is more than at least Rs. 60000 say the group of Months if from July 19 to September 19.

2. Adjustments in July 19: – There are two options for the same

Option 1:- Take the credit of Invoices of Rs. 45,000 lapsed earlier and shift the quantum of Invoices of the value of Rs. 45,000 or less.

Option 2: – The taxpayer has also an option to Avail the Actual Credit for July 2019+ Lapsed credit of Rs. 45,000. Since there will be no restriction on the Availment of ITC because the limit of provisional ITC is applicable from October 2019 onwards. So, the Taxpayer can take the Benefit of Such.

3. Adjustments in August 19: There are two options for the same

Option 1: – Take the credit of Invoices of Rs. 60,000 lapsed earlier and shift the quantum of Invoices of the value of Rs. 60,000 or less.

Option 2: – The taxpayer has also an option to Avail the Actual Credit for August 2019+ Lapsed credit of Rs. 60,000. Since there will be no restriction on the Availment of ITC because the limit of provisional ITC is applicable from October 2019 onwards. So, the Taxpayer can take the Benefit of Such.

Now the question arises on how to claim the ITC Shifted Earlier???

Section 18(2): – A registered person shall not be entitled to take input tax credit under in respect of any supply of goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating to such supply.

Explanation of 18(2): – This section gives a broad idea of the time limit for Availment of ITC on Such Invoices so that no Undue Tax Burden falls on the Taxpayers.

To claim the shifted ITC what we can do is: –

1. Since the Time Limit is up to September 2020 GSTR -3B return or Filling of Annual return of FY 19-20.

2. So, Breakup the whole ITC amount into Parts say 7 months so that he whole ITC of 60,000+45,000= Rs. 1,05,000 if the credit adjustments are after the month of October 2019 period of i.e. Rs. 15000 each month. But we have to take care of the provisions of 36(4) i.e. Provisional ITC of only 10% is allowed if this is not kept in mind will working it will lead to an automated Notice from the Department regarding the Excess Availment of Credit

3. The benefit of this Division is that the Provisions of 36(4) does not trigger it because the ITC will be within a cap of 110% Approx.

4. And the whole credit Will also be availed.

Note: – One has to maintain the records of all such adjustments because if any notice is issued regarding the ITC, we have to give the reply based on adjustments made and the Breakup of all such things.