GST – Denying Refund of ITC not reflected in GSTR-2A- is it valid?


The spread of Corona Virus (COVID-19) has caused immense loss to the lives of people and impacted the trade and industry very badly in unprecedent manner. Government has announced various relief measures relating to statutory and regulatory compliance matters across sectors. Under GST, the Government[1] inter alia

  • Expediting the processing of refunds to the Exporters
  • Deferment of Rule 36(4) for the period February 2020 to August 2020 and cumulative adjustment in September 2020[2]
  • Waiving/concessions in the interest on delayed GST remittance
  • Postponing the various statutory compliances[3]

The above measures are appreciable and welcoming

However, CBIC has issued circular No. 135/05/2020-GST dated 31.03.2020 clarifying the certain issues relating to the refund under GST. One among them, is the denying ITC refund of invoices not reflected in GSTR-2A. The relevant portion of the circular reads as under (Para 5)

5. Guidelines for refunds of Input Tax Credit under Section 54(3)

5.1 In terms of para 36 of circular No. 125/44/2019-GST dated 18.11.2019, the refund of ITC availed in respect of invoices not reflected in FORM GSTR-2A was also admissible and copies of such invoices were required to be uploaded. However, in wake of insertion of sub-rule (4) to rule 36 of the CGST Rules, 2017 vide notification No. 49/2019-GST dated 09.10.2019, various references have been received from the field formations regarding admissibility of refund of the ITC availed on the invoices which are not reflecting in the FORM GSTR-2A of the applicant.

5.2 The matter has been examined and it has been decided 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. Accordingly, para 36 of the circular No. 125/44/2019-GST, dated 18.11.2019 stands modified to that extent.”

Thus, the circular no. 135 clarified that refund would be restricted to the extent of ITC on the invoices reflected in GSTR-2A. In this article, an attempt made is made to analyse the legal validity of the clarification.

As seen from the circular, the circular was issued in wake of Rule 36(4) of CGST Rules, 2017 as amended. The Rule 36(4) prescribed that ITC shall be entitled to the extent of the invoices uploaded by the suppliers and gives another 10%[4] of the matched ITC in addition to the matched ITC.

The above referred clarification of circular No. 135, ibid to restrict the refund of ITC to the extent of invoices reflected in GSTR-2A is not valid inter alia

  • Firstly, the Rule 36(4), ibid itself suffers from the legal infirmity and author is strong view that it would get struck down by the courts in future. Consequently, the clarification based on such ill-founded Rule would also get the same treatment.
  • Even assuming Rule 36(4), ibid is valid, it does not require the invoice level matching to avail ITC, and it requires the matching only at the consolidated level. The same was clarified by the Circular No. 123/42/2019– GST dated 11.11.2019 (relevant portion is given below)


2. Whether the said restriction is to be calculated supplier wise or on consolidated basis? The restriction imposed is not supplier wise. The credit available under sub-rule (4) of rule 36 is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers. Further, the calculation would be based on only those invoices which are otherwise eligible for ITC. Accordingly, those invoices on which ITC is not available under any of the provision (say under sub-section (5) of section 17) would not be considered for calculating 20 per cent. of the eligible credit available.
  • Further, Rule 36(4) gives 20/10% extra ITC in addition to the amount of ITC on the invoices reflected in GSTR-2A which was ignored by the circular no. 135, ibid thereby denying the refund of ITC even though it was eligible u/r. 36(4),

Hence, restricting the refund to the extent of invoices reflected in GSTR-2A runs contrary to the Rule position and previous circulars. In this connection, it is worth noting that

  • Circular contrary to the statutory provisions has really no existence in law. Relied on Commissioner v. Ratan Melting and Wire Industries 2008 (12) T.R. 416 (S.C.)
  • Circulars are meant to clarify the law and not to lay down a law. Further circular cannot impose limitations/conditions which are not provided in the statute and further it cannot take away the rights conferred by statute. Reliance is placed on Tata Teleservices Ltd. v. Commissioner 2006 (194) L.T. 11 (S.C.).
  • Circulars cannot prevail or override the express provision of law. Reliance is placed on All Kerala Association of Chit Funds v. Union of India 2013 (29)T.R. 557 (Ker.) and recently Hon’ble Delhi HC in case of Bharti Airtel Ltd v. UOI 2020 (5) TMI 169 – DELHI HIGH COURT has struck down the Circular No. 26/26/2017-GST dated 29.12.2017 to the extent that it restricts the rectification of Form GSTR-3B in respect of the period in which the error has occurred
  • Circular is not binding on a court and assessee. Reliance is placed on Commissioner Avenue Impex— 2014 (306) E.L.T. 69 (Mad.).


Conclusion: In view of the above, the clarification issued through the Para 5 of Circular No. 135 is not correct. If any person is deprived of the refund because of this circular must challenge in the HC and seek to quash. Further, the circular was issued in the context of the amendment made in October 2019 thereby the ITC availed prior to that shall be granted without insisting for the invoice reflection in GSTR-2A. however, in practice, the department is applying the clarification for the sanction of the refunds for the prior to October 2019 which is again not line with the law in vogue.

Denial of the refund (to the extent of unmatched ITC) is causing hardship to the exporters who are already badly hit by the COVID-19 crisis. Hence, it is suggested to the CBIC to withdraw the Para 5 of the circular or at least modify to allow the refund of ITC when invoices are available without insisting for matching.



[1]Notification No. 31/2020- Central Tax, dated 03.04.2020

[2] Notification No. 30/2020- Central Tax, dated 03.04.2020

[3] Notification No. 35/2020- Central Tax, dated 03.04.2020

[4] 20% up to 31.12.2019

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