Mandatory furnishing of correct and proper information of inter-State supplies and amount of ineligible/blocked Input Tax Credit and reversal thereof in return in FORM GSTR-3B and statement in FORM GSTR-1

Circular No.: 170/02/2022-GST
Date of Circular: 6th July 2022
Relevant Sections and Rules:

• CGST Act, 2017:
  • Section 10: Composition scheme
  • Section 16(4): Time limit for ITC
  • Section 17(5): Blocked credit
  • Section 168(1): Power to issue instructions
• CGST Rules, 2017:
  • Rule 37, 38, 42, 43: ITC reversals
• Return Forms Involved:
  • GSTR-1, GSTR-3B, GSTR-2B

Summary of Clarifications Provided:

1. Correct Reporting of Inter-State Supplies to URP, Composition Taxpayers, and UIN Holders:
   Many registered persons fail to report interstate supplies to unregistered persons (URPs), composition taxpayers, and UIN holders in Table 3.2 of GSTR-3B, under the mistaken belief that inclusion in Table 3.1 suffices.
   Such supplies must be separately reported in:

• Table 3.2 of GSTR-3B (PoS-wise), and
• Table 5, 7B, 9, or 10 of GSTR-1 (depending on recipient type).
  Inaccuracies, particularly in recipient addresses (common in telecom, banking, OTT, e-com sectors), lead to wrong Place of Supply (PoS) declarations, which affect destination-based tax sharing.
  Taxpayers must maintain a clean customer master with correct State names.

2. Uniform Procedure for ITC Reporting, Reversal, and Ineligibility in Table 4 of GSTR-3B:
   With the auto-population of Table 4A of GSTR-3B from GSTR-2B, a standardized process for reporting eligible, ineligible, and reversible ITC is mandated:

• Table 4(A): Total ITC available (auto-populated) – includes both eligible and ineligible credits (except time-barred and wrong-State supplies).
• Table 4(B)(1): Report non-reclaimable reversals/ineligible ITC (e.g., Rule 38, 42, 43; Section 17(5)).
• Table 4(B)(2): Report temporary reversals (e.g., Rule 37 – non-payment to supplier, Sec 16(2)(b)/(c)) – reclaimable later upon fulfilment of conditions.
• Table 4(C): Auto-calculated Net ITC Available = 4A – [4B(1) + 4B(2)] → credited to Electronic Credit Ledger.
• Table 4(D)(1): To be used only for reclaiming temporarily reversed ITC (e.g., after payment to supplier), not for permanent disallowances.
• Table 4(D)(2): Report ITC not available due to Section 16(4) time limits or PoS mismatch between recipient and supply location.

3. Illustration with Example – Manufacturer Supplying Taxable and Exempt Goods:
   A detailed annexure explains how a taxpayer (e.g., M/s ABC) must segregate and report:

• Import ITC, RCM, ISD credits
• Ineligible credits under Sec 17(5)
• Reversals under Rule 42, 43 (exempt supply)
• Temporary reversals (e.g., Rule 37)
• Net eligible credits (4C) and ineligible/time-barred entries (4D)

Source: Circular No.: 170/02/2022-GST