Learn About the Rule 37 Of CGST/SGST Rules

According to rule 37 of CGST/SGST Rules, if a registered person has taken advantage of Input Tax Credit and had failed to pay to the seller on any inward supply of products or services in under 180 days of the invoice date, they must provide the details of the supply. These details consist of, the value of Input Tax Credit taken that is proportional to the amount not paid to the supplier and the value or amount not paid. This information should be filed using FORM GSTR 2 during the month after the invoice date, 180 days after the invoice was issued.

What is Rule 37 of CGST/SGST Rules?

• The value of supplies delivered without consideration as specified in Schedule I of the said Act must be regarded to have been paid for the purposes of the second proviso to sub-section (2) of section 16.
• Furthermore, the value of supplies on account of any sum added after the requirements of clause (b) of sub-section (2) of section 15 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.
• The amount of input tax credit mentioned in sub-rule (1) is added to the registered person's output tax liability for the month in which the information is given.
• The registered person must pay interest at the rate provided in subsection (1) of section 50 for the period commencing with the date of crediting such supplies and ending with the payment of the amount added to the output tax payable as specified in sub-rule (2).
• The time limit imposed in section 16 sub-section (4) does not apply to a claim for re-availing of any credit that has previously been reversed in accordance with the provisions of this Act.

Why is Rule 37 of CGST/SGST Rules used?

Rule 37 of the CGST/SGST regulations are applied in specific circumstances. This rule applies when a registered taxpayer claiming Input Tax Credit on an inward supply of goods and services is unable to pay the invoice amount to the seller within 180 days. According to the second proviso to sub-section (2) of section 16, they must disclose the supply details. They are also required to provide information regarding the amount of input tax credit, claimed proportionate to the sum not paid to the supplier and the amount of value not paid. It simply implies that businesses should keep track of the duration and basis of the creditors against whom they must reverse the ITC.

In large firms, this procedure is particularly difficult since they must deal with many transactions from many locations. Various technologies, such as accounting or ERP software, have been proposed to help corporations with this task. It is important to note that the ITC reversal is indicated by Section 16 of the CGST Act.

If a supplier's bills are raised between July 1 and July 3, 2017, and they remain unpaid till the time limit, the Input Tax Credit can be reversed, together with interest, and the reversed ITC sum should therefore be split into CGST, IGST, SGST, and Cess.

Exceptions for Rule 37 of CGST/SGST Rules

There are some exemptions to Rule 37 of GST, which are provided below:

1. Time does not apply to a claim to reclaim any credit that has already been reversed, as stipulated in section 16(4).
2. The registered individual would be accountable for paying 18% p.a. interest from the date of receiving ITC on such deliveries until the amount is included in the output tax due.
3. The amount of ITC used will be applied to the registered individual's output tax due for the month in which the supply information is given.
4. According to section 15(2)(b), the value of supplies due to any sum added is regarded to have been paid for the second proviso to section 16(2).
5. The value of supplies generated without consideration will be regarded to have been paid for the second proviso on section 16(2) purposes, as defined in Schedule I of the Act.

• Furthermore, various requirements must be met for claiming Input Tax Credit under Section 16 of the CGST Act, 2017, as follows:

Section 16(1)'s conditions are as follows:

• GST Registration
• Goods or services to be transformed for commercial purposes 

Conditions under Section 16(2):

• Return submission
• The products and/or services are received.
• Having a tax-paying document in your possession
• Tax on products or services supplied to the government that is paid to the government 

Procedure for reversal of input tax credit in case of non-payment of consideration

 A registrant who has claimed input tax credit on any inward supply of goods and services, or both-

• But fails to make the value of such supply, 
• As well as the tax due thereon, 

to the seller within the timeframe indicated in the second proviso to section 16(2), shall report the information of such supply and the sum of input tax credit claimed in form GSTR-2 for the month followed by a period of 180 days from the date of issue of the invoice.– Rule 37(1) of CGST and SGST Rules, 2017.

The sum must be assumed to have been paid in circumstances where GST is payable without consideration as defined in Schedule I of the CGST Act – first proviso to Rule 37(1) of the CGST and SGST Rules, 2017. 

[With effect from June 13, 2018, the proviso has been renamed the first proviso.] [In this situation, a genuine payment receipt is not necessary].

The sum mentioned above of the input tax credit is applied to the registered person's output tax obligation for the month in which the details are provided - Rule 37(2) of the CGST and SGST Rules, 2017. The registered person is responsible for paying interest at the rate made aware under section 50(1) of the CGST Act for the period beginning on the date of crediting such supplies. It is valid until the date when the sum added to the output tax obligation as discussed above is paid, according to Rule 37(3) of the CGST and SGST Rules, 2017.

• Payment is considered received if the amount paid by the person receiving on behalf of the seller is added to the value for GST payment – 

Section 15(2)(b) of the CGST Act, the sum of money which seller is required to pay in connection with such supply was paid by the person receiving the supply and was not included in the price paid or due for the supply, it is considered to have been received.

Because only the 'amount' paid by the receiver on behalf of the provider is included, this cannot encompass free inputs or services provided by the recipient. This would only be true if the provider had a contractual obligation to make such supplies. However, if the sum was a contractual duty of the supplier that was paid on his behalf by the receiver, it will be included in 'value' for the purpose of GST payment.

Even though the value of this amount is addable, the recipient will not pay for it. In most cases, if the receiver does not pay, the proportionate input tax credit must be revoked under secti on 16(2) of the CGST Act. However, it will be assumed that the money has been received in such circumstances. As a result, there will be no need to reverse the proportional input tax credit – second proviso to rule 37(1) of the CGST Rules, ef fective June 13, 2018.

Even though the regulation does not expressly state so, this second proviso should take effect immediately.

• Re-availing the credit after payment to supplier – 

The credit of ITC so reversed can be taken after payment is made to the supplier of goods or services or both. The time limit of one year as specified in section 16 of the CGST Act will not apply to such re-credit – Rule 37(4) of CGST and SGST Rules, 2017.

Also Read: E-Invoicing for Businesses with Turnover Over Rs.50 Crore

Examples of Rule 37 of CGST/SGST Rules

Take a look at some of the instances of rule 37 of GST in various settings listed below:

Example 1:

Assume QPR signed a deal with MNO. The two have agreed on a supply price of Rs. 100,000. The supplier's invoice is due on the 10th of April. On the same day, MNO received an ITC of Rs. 18,000 (Rs. 1,00,000*18 percent tax rate). On the other hand, MNO failed to pay the supply amount within 180 days and only paid on October 9th, 180 days later.

Ans: In October, MNO would need to add the ITC of Rs. 18,000 to the output tax due, as well as the interest of Rs. 1598 (18,000*18 percent *180/365). 

Interest must be paid from the 10th of April (billing date) through the 9th of October  (date on which ITC amount is added to output tax liability).

Example 2:

During the financial year 2018-19, QPR Pvt Ltd earned revenue of Rs.1 crore and bought goods and received services as follows: 

Calculate Tax liability for the year 2018-19 to be filed under GSTR9?

Ans: Calculation of Output Tax

Calculation of ITC

Tax Payable: 605000

Interest payable:

1. Goods purchased on 20.05.2018, and ITC availed Rs. 360000

but reversed after 180days

360000 * 18% *180/365 = 31956

2. Goods purchased on 21.08.2018, and ITC availed Rs. 540000

but reversed after 180 days

540000 * 18% *180/365 = 47934

Example 3:

Assume MNO drafted a permission agreement with a customer. The supply price agreed upon by the two sides is Rs. 4,00,000 plus GST. The client has borne one of the charges of Rs. 60,000 that the supplier MNO was required to bear. On a total value of Rs. 4,00,000, the supplier charged the client Rs. 3,40,000 (4,00,000 – 60,000) plus GST.

Ans: Value of supply = Rs. 4,00,000, according to clause 15(2)(b) (Rs. 3,40,000 + Rs. 60,000)

The customer's actual payment was Rs. 3,40,000.

The client will still be considered to have paid in full to supplier MNO, implying that section 16(2) Input Tax Credit reversal is unnecessary.

Also Read: Different Types of E-Ledgers under GST

Conclusion

Rule 37 of GST is related to the reversal of ITC when a registered individual with ITC doesn't make the invoice payment to the supplier within 180 days period. On either side, if the person will pay a component of the invoice, then ITC is going to be reversed on a proportionate basis. Therefore, we hope you now have a clear idea regarding Rule 37 GST. To know more about GST, download the Khatabook app.