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written by Khatabook | December 7, 2021

Learn About the Rule 37 Of CGST/SGST Rules

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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: 

S.No

Date of Purchases

Particulars

Date of Payment

1.

01.04.2018

Goods worth (1000000+ 180000)

01.05.2018

2.

20.05.2018

Goods worth (2000000+ 360000)

20.06.2019

3.

21.07.2018

Goods worth (2500000 +450000)

05.07.2018

4.

20.08.2018

Freight paid Rs.500000 and RCM paid 25000

Unpaid

5.

21.08.2018

Goods worth (3000000+ 540000)

01.03.2019

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

Ans: Calculation of Output Tax

S.No

Particular

GST

Remark

1.

Outward Supply Rs.1.00 cr

1800000

Output liability

2.

Goods purchased on 21.08.2018(3000000 540000)

540000

ITC must have been taken in return for August and need to be reversed while filing the return for Feb

3.

Goods purchased on 20.05.2018

360000

ITC must have been taken in return for May and need to be reversed while filing the return for Nov

Output liability

2700000

 

Calculation of ITC

S.No

Particular

GST

Remark

1.

Purchases made on April 1, 2018 (1000000 180000)  

180000

Paid within 180 days

2.

Purchases made on May 20, 2018 (2000000 360000)

360000

The first credit has been accepted, and then it has been reversed.

3.

Purchases made on July 21, 2018 (2500000 450000)

450000

Amount paid in advance

4.

Freight was paid Rs. 500000, and RCM was paid Rs. 25000.

25000

Though unpaid, the input can be used as a substitute for RCM input under Rule 37

5.

Purchased on August 21, 2018 (3000000 540000)

540000

The first credit has been accepted, and then it has been reversed.

6.

After 180 days, an invoice dated August 21, 2018, was paid.

540000

Accepted credit

Input Credit

2095000

 

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.

FAQs

Q: Is it necessary to reverse the ITC if the receiver pays part of the consideration and tax within 180 days?

Ans:

Yes, of course. According to rule 37 of the CGST/SGST Rules, the recipient must reverse ITC on a proportional basis for the portion of the consideration and tax paid or the remaining amount payable within 80 days.

Q: How can we compute 180 days for the reversal of the Input Tax Credit?

Ans:

The 180 days for reversing Input Tax Credit is calculated from the day the invoice was raised. We cannot use the date of the ITC claim or the date of receipt of goods or services to determine the 180 days because they are irrelevant.

Q: Is it necessary to reverse the Input Tax Credit in the case of non-payment of consideration for supplies acquired through the reverse charge mechanism?

Ans:

No, that is not the case. You do not need to reverse any Input Tax Credit that has already been claimed for inbound supplies received using the reverse charge process. According to Section 16 of the CGST Act, RCM supplies are exempt from applying the ITC reversal provision for non-payment of consideration within 180 days after invoice issuance.

Q: Can the Input Tax Credit be reclaimed after it has been reversed?

Ans:

Once the registered individual reverses the Input Tax Credit for not paying the consideration within 180 days, one may reclaim it. The registered person can reclaim the reversed ITC if they pay the consideration at a later date after 180 days, according to the Proviso to Section 16(2).

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.