Does amendment/s to Rule 37 is prospective or retrospective? And its implications?

[Amit Agrawal]

As you are aware, vide Notification No. 19/2022–Central Tax dated the 28th September, 2022, sub-rule (1) & (2) of rule 37 of the CGST Act, 2017 were substituted while sub-rule (3) thereof was omitted.

As per Clause 1 (2) of above said notification reads as follows: Save as otherwise provided in these rules, they shall come into force with effect from the 1st day of October, 2022.

Does these amendment/s to Rule 37 is prospective or retrospective? Please share your views with supporting legal reasoning.

And to make this discussion more meaningful and lively, I request you to also explain what will be implications if you feel that these amendments are prospective in nature (i.e. what happens to contraventions under second proviso to sub-section (2) of section 16 for past period & its recovery procedure as per law etc.?).

Similarly, I request you to also explain what will be implications if you feel that these amendments are retrospective in nature (i.e. how any tax-paper is supposed to follow these substituted rule for past period, effect of changes made in sub-rule (1) about quantum of ITC reversal etc?).

Thank you!

[Rajagopalan Ranganathan]

Sir,

The amendments made by notification can be given retrospective effect only through Finance Bill/Finance Act. Until such retrospective effect is enacted by Parliament the amendments will have only prospective effect.

[Shilpi Jain]

As per the recommendations of the 48th Council meeting

The Council has recommended to amend sub-rule (1) of rule 37 of CGST Rules, 2017 retrospectively with effect from 01.10.2022 to provide for reversal of input tax credit, in terms of second proviso to section 16 of CGST Act, only proportionate to the amount not paid to the supplier vis a vis the value of the supply, including tax payable.

This should rest certain ambiguities

[Amit Agrawal]

Another recommendations dated 17.12.2022 of the 48th Council meeting reads as follows:

The Council recommended to insert Rule 37A in CGST Rules, 2017 to prescribe the mechanism for reversal of input tax credit by a registered person in the event of non-payment of tax by the supplier by a specified date and mechanism for re-availment of such credit, if the supplier pays tax subsequently. This would ease the process for complying with the condition for availment of input tax credit under section 16(2)(c) of CGST Act, 2017.

Lets wait for notification/s giving exact wordings - to implement all these recommendations - before we take up subject query (which was raised on 13.12.2022, before these recommendations come into picture) a fresh.

AI Summary

Retrospective effect of GST rule amendments remains limited unless Parliament enacts retrospective law, and administrative recommendations propose reversal mechanisms. Absent express retrospective enactment by Parliament, the Notification amending Rule 37 operates prospectively; retrospective effect altering past liabilities requires an express retrospective provision in Finance legislation. The 48th Council recommended treating certain reversals as retrospective to provide proportionate input tax credit reversal and proposed Rule 37A to prescribe reversal and re availment mechanics, but implementation awaits notifications and legislative wording.