Clarification on Time Limit for Availing Input Tax Credit Under Section 16(4) of CGST Act for RCM Supplies from Unregistered Persons
The Central Board of Indirect Taxes and Customs (CBIC) has issued a circular (Circular No. 211/5/2024-GST) addressing the time limit for availing Input Tax Credit (ITC) under Section 16(4) of the Central Goods & Services Tax (CGST) Act, 2017.
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This clarification is particularly focused on supplies received from unregistered persons, where tax is paid under the reverse charge mechanism (RCM).
Background and Industry Concerns
Representations from trade and industry have raised concerns regarding the applicability of the time limit specified under Section 16(4) of the CGST Act for claiming ITC on tax paid under RCM for supplies received from unregistered persons. The issue stems from scenarios where the recipient of the supply is required to pay tax on reverse charge basis, particularly when the supply involves activities performed by overseas related persons for entities located in India without consideration, leading to no invoice issuance and no tax payment initially.
In such cases, the recipient may later issue an invoice and pay the tax under RCM, claiming ITC on the tax paid. However, field formations have different views on whether the relevant year for ITC availment is the year of supply receipt or the year of invoice issuance. Industry stakeholders argue that the invoice issued by the recipient as per Section 31(3)(f) of the CGST Act should determine the relevant financial year for ITC availment.
Legal Provisions and Clarifications
Section 16(2)(a) of the CGST Act
A registered person is entitled to ITC only if they possess a tax invoice or debit note issued by a registered supplier or other prescribed tax-paying documents.
Rule 36(1)(b) of CGST Rules
This rule allows ITC to be availed based on an invoice issued in accordance with Section 31(3)(f) of the CGST Act, subject to the payment of tax.
Section 31(3)(f) of the CGST Act
A registered person liable to pay tax under Section 9(3) or 9(4) must issue an invoice for supplies received from unregistered suppliers on the date of receipt of goods or services.
Section 16(4) of the CGST Act
This section, amended by the Finance Act, 2022, stipulates that ITC cannot be taken after the 30th of November following the end of the financial year to which the invoice or debit note pertains or the furnishing of the relevant annual return, whichever is earlier.
Board’s Examination and Conclusion
Upon examining the representations and legal provisions, the CBIC clarifies:
- Issuance of Invoice and Payment of Tax: For supplies from unregistered suppliers where the recipient is liable to pay tax under RCM, the recipient must issue an invoice as per Section 31(3)(f) and pay the tax in cash under RCM.
- Relevance of Financial Year for ITC: The financial year relevant for Section 16(4) purposes is the year in which the recipient issues the invoice. ITC can be availed until the September or November of the following financial year, provided the tax is paid and other conditions under Sections 16 and 17 are met.
- Delayed Issuance and Payment: If the recipient issues the invoice after the time of supply, interest on the delayed payment of tax is applicable. Additionally, delayed issuance may attract penal action under Section 122 of the CGST Act.
Implementation and Trade Notices
Field formations are requested to issue suitable trade notices to publicize the contents of this circular. Any difficulties in implementing this circular should be reported to the Board.
This clarification aims to ensure uniformity in the implementation of ITC provisions under the CGST Act, particularly for RCM supplies from unregistered persons, and to mitigate litigation on this matter.
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