RETURNSCentral

Section 38 of The Central Goods and Services Tax Act, 2017

1[38. Communication of details of inward supplies input tax credit.--- (1) The details of outward supplies furnished by the registered persons under sub-section (1) of section 37 and of such other supplies as may be prescribed, and an auto-generated statement containing the details of input tax credit shall be made available electronically to the recipients of such supplies in such form and manner, within such time, and subject to such conditions and restrictions as may be prescribed.

(2)The auto-generated statement under sub-section (1) shall consist of---
1. (a)details of inward supplies in respect of which credit of input tax may be available to the recipient; and
2. (b)details of supplies in respect of which such credit cannot be availed, whether wholly or partly, by the recipient, on account of the details of the said supplies being furnished under sub-section (1) of section 37,---
  1. (i)by any registered person within such period of taking registration as may be prescribed; or
  2. (ii)by any registered person, who has defaulted in payment of tax and where such default has continued for such period as may be prescribed; or
  3. (iii)by any registered person, the output tax payable by whom in accordance with the statement of outward supplies furnished by him under the said sub-section during such period, as may be prescribed, exceeds the output tax paid by him during the said period by such limit as may be prescribed; or
  4. (iv)by any registered person who, during such period as may be prescribed, has availed credit of input tax of an amount that exceeds the credit that can be availed by him in accordance with clause (a), by such limit as may be prescribed; or
  5. (v)by any registered person, who has defaulted in discharging his tax liability in accordance with the provisions of sub-section (12) of section 49 subject to such conditions and restrictions as may be prescribed; or
  6. (vi)by such other class of persons as may be prescribed.]

Summary

The single most important thing Section 38 of the Central Goods and Services Tax Act does is provide recipients with an electronic statement detailing their inward supplies and the availability of input tax credit.
This statement is generated based on the outward supply details that suppliers submit themselves.
The statement categorizes supplies into two distinct groups, those where the recipient can claim input tax credit, and those where the credit cannot be availed.
Credit may be restricted wholly or partly if the supplier is newly registered, has defaulted on paying taxes, has paid less tax than they declared, or has claimed excessive input tax credit.
Credit is also restricted if the supplier defaults in discharging their tax liability under specific electronic credit ledger rules.

Practical examples

1Kavita buys office laptops from a wholesaler. When she logs into the tax portal, she receives a statement showing the laptops as an inward supply, confirming she can claim the input tax credit because the wholesaler filed their returns correctly.

2Manoj purchases raw materials from a vendor who has stopped paying their taxes for six months. Manoj's monthly electronic statement highlights this purchase but indicates that the input tax credit is restricted due to the vendor's continuous tax default.

FAQ

1. What information is provided in the statement under Section 38 of the CGST Act?

Under Section 38 of the CGST Act, the statement provides details of inward supplies received by a taxpayer and clearly indicates whether the input tax credit for those supplies is available or restricted.

2. Why might my input tax credit be restricted under Section 38 of the GST law?

According to Section 38 of the GST law, your credit might be restricted if your supplier defaulted on tax payments, claimed excess credit, paid less output tax than declared, or is within a newly prescribed registration period.

3. How is the inward supply statement generated under Section 38 of the Central Goods and Services Tax Act?

Section 38 of the Central Goods and Services Tax Act states that the statement is made available electronically based on the details of outward supplies furnished by your suppliers.

Test yourself

Q1.Under Section 38 of The Central Goods and Services Tax Act, 2017, what happens to the details of outward supplies furnished by a supplier?

Q2.According to Section 38 of the CGST Act, 2017, which of the following is a valid reason for input tax credit to be shown as restricted in a recipient's statement?

Q3.Under Section 38 of the GST law, an inward supply statement consists of two main categories regarding input tax credit. What are they?

Q4.Sections 37 and 38 of The Central Goods and Services Tax Act, 2017 are interconnected. If a supplier pays less output tax than they declared in their Section 37 statement, how does Section 38 handle this for the buyer?

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