GST Practitioners Raise Alarm Over Rule 37A

Posted on    17 November 2023

In a recent development, the All Kerala GST Practitioners Association has raised alarm bells over the potential dampening effect on businesses due to the input tax credit (ITC) reversal mandated by Rule 37A. The association, in a statement on Wednesday, expressed concerns that this rule places the tax liability burden on the buyer if the seller fails to pay the required taxes.


Under Rule 37A, if a supplier is unable to pay the tax on time, the buyer is obligated to settle the tax and interest on behalf of the seller, thereby shouldering the financial burden. The GST law traditionally requires the selling entity to file GST returns reflecting the tax as per the issued bill. However, the newly introduced rule complicates matters, stipulating that if the supplier files only GSTR 1 (which contains information about the bills) for the respective month, the buying firm must ensure that GSTR 3B, a continuation of GSTR 1, is filed within the specified time limit.

Failure to meet this requirement results in the buyer having to pay the input tax credit (ITC) shown on the received bill to the department, accompanied by interest. GST practitioners argue that this places an undue burden on the buyer, doubling their financial responsibility in situations where the seller faces challenges in meeting their tax obligations.

One GST practitioner emphasized the need for careful consideration, stating, "When there are strict provisions in the GST system to extract the tax from the seller, doubling the burden on the buyer creates a challenging situation for them."

The newly introduced Rule 37A further adds urgency to the situation, indicating that any discrepancies in the tax returns for the financial year 2022-23 must be addressed before November 30, 2023. Failing to rectify these issues within the stipulated timeframe will result in the buyer being liable for excess tax payments, along with interest.

As businesses navigate the complexities of these regulatory changes, stakeholders are closely monitoring the potential impact on the business environment, urging a careful examination of the rule's implications and its repercussions on both buyers and sellers in the GST system.

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