What Happens to Input Tax Credit If Your Supplier Does Not File?

A business that has already paid its supplier in full, GST included, and is now holding a notice has its credit reversed for the time being, not written off, and the statute provides for taking the credit back when the supplier files.

Section 41 of the CGST Act entitles the registered person to avail eligible credit as self-assessed in the return, and sub-section (2) requires that person to reverse it with interest where the supplier has not paid the tax. Under the proviso to that sub-section, where the supplier subsequently pays, the registered person "may re-avail the amount of credit reversed". Rule 37A provides for the same reversal and re-availment in the GSTR-3B returns, by reference to 30 September and 30 November.

• The recipient will have to reverse the credit, because Section 16(2)(c) allows credit only where the tax has actually been paid to the Government, and a supplier who has not filed has not paid.
• The recipient can take the credit back: the second proviso to Rule 37A allows re-availment in a return for a tax period after the one in which the supplier files the missing return.
• A reversal is not a penalty and is not a finding that the recipient did anything wrong, and whether the demand and penalty provisions apply is a separate question that depends on the recipient's own conduct.
• Under Section 155, the burden of proving eligibility lies on the person claiming the credit.

The claim had to satisfy the ordinary Section 16 conditions for input tax credit before Section 41 or Rule 37A applies to it.

Whether Rule 37A applies depends on which condition in Section 16(2) is not met:

Under the closing words of Section 16(2)(c), the supplier may discharge the liability out of his own credit, and tax discharged that way is paid to the Government. An invoice showing in the recipient's GSTR-2B does not show that the supplier has filed his GSTR-3B, because GSTR-2B is generated from what he reported, not from what he paid.

Section 16(2)(ba) applies to the details in the statement, not to the payment of tax, and it is not yet operative. Each of the six sub-clauses of Section 38(2)(b) is conditioned on a period, a limit or a class "as may be prescribed", and nothing has been prescribed for any of them. Until a period, limit or class is prescribed, no restriction under Section 38(2)(b) can apply, and Section 16(2)(ba) has no application.

A Nagpur trading firm buys goods in October 2024, on an invoice of ₹3,15,000 plus GST of ₹56,700, and pays the whole ₹3,71,700 to the supplier by bank transfer in November. The supplier files GSTR-1, so the invoice appears in the firm's FORM GSTR-2B, and the firm claims the credit in its October 2024 GSTR-3B. The supplier does not file the GSTR-3B for that month until March 2026.

Of ₹3,71,700 paid to the supplier, the ₹56,700 of tax is the amount reversed. A reversal after 30 November costs interest on that figure alone; counted from 30 November, it is ₹2,517 for a ninety-day delay and ₹10,206 for a full year. Rule 37A's first proviso states only that the amount is payable "along with interest thereon under section 50", without naming a sub-section, so which one applies is a question to settle on the recipient's facts. Where the credit was availed and also utilised, the better view is Section 50(3) with Rule 88B(3); where it was not, Section 50(1) with Rule 88B(2). Notification No. 13/2017-Central Tax of 28 June 2017 specifies 18 per cent for both, at Table serial 1 for Section 50(1) and at serial 2 for Section 50(3), the latter substituted for 24 with retrospective effect from 1 July 2017. The rate is the same under either sub-section, but the period is not. Rule 88B(2) runs interest from the date on which the tax was due to be paid, here 30 November, so the ninety-day figure is ₹56,700 × 18% × 90 ÷ 365, or ₹2,516.55, rounded to the rupee. Rule 88B(3) runs interest "from the date of utilisation of such wrongly availed input tax credit till the date of reversal", so where the credit was utilised before 30 November the period is longer and the interest is larger.

When the ₹56,700 is re-availed, the interest paid for the period of delay is not refunded, and a credit wrongly availed and utilised attracts interest under Section 50(3).

Section 50(2) provides that interest runs "from the day succeeding the day on which such tax was due to be paid", and Rule 88B(2) provides that it runs "for the period starting from the date on which such tax was due to be paid", so under the rule the period begins a day earlier than under the section. The two do not conflict, because Section 50(2) delegates the manner of computation in the words "in such manner as may be prescribed", and Rule 88B is what was prescribed under it. The ₹2,517 and ₹10,206 figures are computed under Rule 88B(2), and one day either way changes ₹2,517 by about ₹28.

Rule 37A applies where the recipient availed credit in its GSTR-3B on an invoice the supplier did report, and the supplier did not file the corresponding GSTR-3B by 30 September following the financial year of availment. That reporting can be in GSTR-1, in FORM GSTR-1A amending it, or through the invoice furnishing facility. The words about GSTR-1A were inserted into the rule by Notification No. 12/2024-Central Tax of 10 July 2024.

The reversal is reported in Table 4(B)(2) of FORM GSTR-3B, and the re-availment in Table 4(A)(5) and Table 4(D)(1):

A notified form and its instructions are part of the Rules, so the Table 4(B)(2) reporting is prescribed by the Rules.

The last sentence of Instruction 8 reads "Table 5 shall be made available only in FORM GSTR 2B of the September of the next financial year (made available in October)." The October GSTR-2B is made available after the supplier's 30 September test date and before the recipient's own 30 November deadline, and no later GSTR-2B supplies the calculation again. A recipient that does not review the October statement first learns of the reversal when interest is charged. Enter the October GSTR-2B in the compliance diary as the check for this reversal.

Circular 170 places the reversal in Table 4(B)(2) on a different basis from the form, by whether a reversal can be reclaimed, and puts reversals "which are absolute in nature and are not reclaimable" in another row. The circular does not name Rule 37A and could not have named it, because the rule was inserted after the circular.

Rule 37A sets no outer date for the recipient's re-availment, and Rule 37(4), which is in the same Chapter of the CGST Rules, provides that the Section 16(4) time limit "shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier". Rule 37 and the other reversal provisions require reversal of input tax credit on their own conditions.

Rule 88D provides for an intimation in Part A of FORM GST DRC-01C, issued electronically before officer review, where the credit availed in the recipient's GSTR-3B exceeds the credit available in its GSTR-2B. The rule is drafted passively and places no duty on the portal. Within the seven days that Rule 88D provides, the recipient must either pay the excess with interest under Section 50 through FORM GST DRC-03 and report it in Part B, or explain the difference in Part B.

Where the supplier filed GSTR-1 but not GSTR-3B, the invoice still appears in the recipient's GSTR-2B, so the credit is reversed under Rule 37A and no DRC-01C arises from that invoice when the credit is first claimed. Re-availing the credit later in Table 4(A)(5) can take the credit claimed in that period's GSTR-3B above that period's GSTR-2B and draw a DRC-01C, which the recipient answers in Part B with the reason for re-credit of a Rule 37A reversal.

Rule 59(6)(e) bars a registered person issued with a Rule 88D(1) intimation from furnishing the details of outward supplies under Section 37 in FORM GSTR-1, or using the invoice furnishing facility, for a subsequent tax period. The bar ends once he has paid the amount or furnished a reply, and GSTN states in its guidance that the block is removed as soon as Part B is filed.

Rule 88D(1) applies where the difference exceeds "such amount and such percentage, as may be recommended by the Council". Those figures are a Council recommendation configured on the portal and are not in the rule text.

In Part B, the recipient may use either or both of two entries: the ARN of a FORM GST DRC-03 through which it paid, and a reason from a fixed list. The portal validates the ARN and rejects one whose DRC-03 was filed before Part A was issued, or whose cause of payment is not the ITC mismatch head. Entering an ARN is not compulsory. Each reason in the fixed list has a 500-character box and an optional document in support:

1. Credit not availed in an earlier period because the goods or services had not been received in that period, including goods received in instalments.
2. Credit not availed in an earlier period inadvertently, or by mistake or omission.
3. Credit on the import of goods, which does not appear in FORM GSTR-2B.
4. Credit on inward supplies from a special economic zone, which does not appear in FORM GSTR-2B.
5. Excess reversal in an earlier period, being reclaimed now.
6. Re-credit on paying the supplier, of credit reversed under Rule 37.
7. Re-credit on the supplier filing his return, of credit reversed under Rule 37A.
8. A GSTR-3B filed with incorrect details, to be amended next period.
9. Any other reason, specified in the box.

GSTN's reply screen provides reason 7 for the recipient to state the re-credit of a Rule 37A reversal once the supplier files. A recipient that chooses one of several of the other reasons concedes that the credit was not properly taken when it was taken, and its choice is recorded. If the recipient's position is that the GSTR-3B is right and the GSTR-2B is wrong, the reason to choose is reason 9, with an explanation.

Withholding the tax component until the supplier has filed is the only step that reliably protects the recipient, and the other steps apply once the supplier has failed to file.

Because Rule 37 requires the recipient to reverse the credit where the value and the tax have not been paid to the supplier within 180 days of the invoice, withholding protects the recipient only for that period. Either the supplier files within it, or the recipient has to settle the dispute, obtain a credit note, or decide to pay and reverse under Rule 37A instead.

Withholding can also make the Circular 183 certificate procedure unavailable for an old year. Paragraph 4 of Circular 183 requires the officer to satisfy himself of the Section 16 conditions first, and one of them is "that he has made payment for the amount towards the value of supply, along with tax payable thereon, to the supplier". A buyer who withheld the tax component has not made that payment. A recipient therefore has to weigh the protection withholding gives in a current year against the certificate procedure it can make unavailable for an old year.

Withholding, a contract term, monthly reconciliation, a filing-status check and a claim file do not guarantee an outcome, but they put the recipient in the position of the buyers in the judgments decided in the taxpayer's favour: a buyer who paid through banking channels, held documents, reconciled promptly and can show it.

For FY 2017-18 to 31 December 2021, where the difference is between what the recipient claimed in GSTR-3B and what appeared in GSTR-2A, CBIC has directed officers to accept a certificate. The procedure does not exist for current years.

Circular No. 183/15/2022-GST of 27 December 2022 covers FY 2017-18 and FY 2018-19 and sets a threshold of ₹5 lakh of difference "in respect of a supplier for the said financial year":

The threshold is measured per supplier per financial year, on the difference between credit claimed and credit available. The first paragraph of the circular reads "exceeds" and the second reads "upto", so a difference of exactly ₹5 lakh needs the supplier's certificate.

For FY 2017-18, paragraph 4.2 of Circular 183, which is based on the proviso to Section 16(4), provides that the relaxations "shall not be applicable" to credit claimed in a GSTR-3B filed after the due date for September 2018 and up to the due date for March 2019, where the supplier had not reported the supply in his GSTR-1 by the due date for March 2019.

Circular No. 193/05/2023-GST of 17 July 2023 extends the same treatment to 1 April 2019 to 31 December 2021:

The caps are the circular's treatment of Rule 36(4) as it stood in those periods, and they are not in the rule text today.

Paragraph 4(ii) of Circular 193 states that credit above the Rule 36(4) limit "shall not be admissible … even if the requisite certificate as prescribed in Circular No. 183/15/2022-GST … is submitted". On the circular's own illustration, against ₹3,00,000 in GSTR-2A and ₹5,00,000 claimed, only ₹60,000 can be allowed on certificates.

Circular 183 is confined to "the bonafide errors committed in reporting" and states that its guidelines "shall not be used in the interpretation of the provisions of law". Circular 183 applies only to "ongoing proceedings in scrutiny/audit/investigation" and not to completed ones, though it extends to pending adjudication and appeal. Circular 193 does not replace Circular 183: it extends Circular 183 to later periods and relies on it as an instrument in force, so the period Circular 183 covers is unaffected.

The validity of Section 16(2)(c) is settled, reading it down for a bona fide purchaser is contested, and whether the department must pursue the defaulting supplier first is undecided by the Supreme Court.

On validity, the Supreme Court held there is "no possibility of drawing parity" between the Delhi Value Added Tax Act and the CGST Act, and a purchasing dealer under GST cannot be treated on a par with a bona fide purchasing dealer under the older statute when the supplier fails to pay. The Supreme Court then recorded, as something "the High Court of Gujarat has also referred to", Section 41 read with Sections 73 and 74, on which the purchaser is "entitled to re-avail the reversed ITC after the supplier-dealer is made to discharge the tax liability". On that reasoning, re-availment is the purchaser's answer to the supplier's failure to pay. The parity holding is the Supreme Court's own; the re-availment point is the Gujarat High Court's, which the Supreme Court noted with approval when it refused leave.

On whether the department must pursue the supplier first, the Calcutta High Court and the Patna and Kerala High Courts hold opposite views, and the view that applies depends on the State:

Because M. Trade Links was decided by a single judge and Suncraft Energy and Aastha Enterprises both by Division Benches, the three do not carry equal weight for a recipient weighing which line a court in its State is likely to follow.

The argument that the department must pursue the supplier first is still available, but it is weaker than it was in 2023, because Suncraft's list of exceptional cases is open-ended, Suncraft construed Section 16(2)(c) in its pre-amendment form, on FY 2017-18, and its reasoning is based on a Delhi Value Added Tax authority, although the Supreme Court has since rejected parity between that Act and the CGST Act.

After the Supreme Court decision of 24 July 2026, the Rajasthan High Court decided against the recipient in Shree Karni Electrovision and the Calcutta High Court applied Suncraft Energy in Cart Infralog. Because the High Courts still differ, a recipient's position depends on the High Court precedent binding in its State, and not on which decision is more recent.

A portal intimation, a pre-notice communication and a show cause notice look similar but are different documents, and the reply and the time allowed both depend on which one has arrived, so identify it first.

Check first whether the supplier has since filed the missing return; the check takes a minute.

If the return has been filed, both the Rules and the Act provide for re-availment. The second proviso to Rule 37A allows re-availment in the GSTR-3B for a tax period thereafter, meaning any period after the one in which the supplier furnished the return. The proviso to Section 41(2) provides the same in the Act: where the supplier makes payment, the registered person "may re-avail the amount of credit reversed by him". The Supreme Court referred to this mechanism when it upheld the clause.

So a demand that treats the credit as lost may concern a credit that is already re-available. Check the filing status, print it with a date, and put it before the officer before raising any other argument.

Which instrument applies to a demand depends on the financial year in which the recipient claimed the credit, and the periods do not overlap:

Circular 193 ends on 31 December 2021. Rule 37A was inserted on 26 December 2022 with no start date of its own, and it applies to credit availed "in the return in FORM GSTR-3B for a tax period" by reference to the 30 September following the financial year of availment. The first year to which it could apply was therefore FY 2022-23 in full, against 30 September 2023, with reversal due by 30 November 2023, so neither instrument applies to January to March 2022.