October 5, 2021

Clarification in respect of certain GST related issues

In the matter of various issues related to GST, The GST council has received various representations from stakeholders who are seeking clarification in respect of these issues regarding GST laws. The GST Council in its 45th GST Council meeting recommended CBIC to issue necessary Clarification on these issues.

In pursuance of the recommendation of GST Council, CBIC issued necessary clarification vide Circular No. 160/16/2021-GST dated 20th September 2021 on the following issues

Issue:1: Time limit of Claiming ITC on Debit Notes

WIth effect from 01.01.2021, an amendment has been made in Section 16(4) of CGST Act, 2017 which states that that a registered person is not entitled to claim input tax credit (ITC) in respect of invoice or debit note after the furnishing of the return u/s 39 for the month of september following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.
Now, doubts have been raised seeking on following issues:

Which date should be considered for determining the financial year for the purpose of section 16(4).
- Date of issuance of debit note, or
- Date of issuance of underlying invoice.
Whether amended provisions of Section 16(4) shall apply with respect to Debit Note issued before to 01.01.2021 but ITC availed after 01.01.2021 or it shall apply only with respect to debit Notes issued on or after 1st January, 2021.

Clarification

Amendment in section 16(4) was made vide the Finance Act, 2020 to delink the date of debit note from date of issuance of the underlying invoice for the purpose of availing ITC. Prior to amendment Section 16(4) was read as follows:

“A registered person shall not be entitled to take the input tax credit in respect of any invoice or debit note for the supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of the financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.”

However, such words have been deleted. Therefore, ITC on debit note has been delinked with underlying invoice. Same intention of law is also specified in Clause 118 of Memorandum explaining Finance Bill, 2020.

Clarification on the doubts arose:

With effect from 01.01.2021, In the case of Debit Notes, the date of issuance of debit note shall be taken as base to determine the financial year for the purpose of section 16(4) of the Act.
With respect to availability of ITC on debit notes issued prior to 01-01-2021, following clarification has been provided:

Date of Issuance of Debit Note	Date of availing of ITC	Whether Provisions of Section 16(4) shall apply or not?
Prior to 01.01.2021	Prior to 01.01.2021	Provisions of Section 16(4) as existed on a date prior to 01.01.2021 shall apply.
Prior to 01.01.2021	On or After 01.01.2021	Amended provisions of Section 16(4) shall apply
On or After 01.01.2021	On or After 01.01.2021	Amended provisions of Section 16(4) shall apply

Illustration 1
- Date of Original Invoice: 16.03.2021
- Date of corresponding Debit Note: 07.07.2021
- Here, the invoice is related to F.Y. 2020-21 and therefore, in terms of Section 16(4), relevant Financial year for availment of ITC in respect of the such Invoice shall be 2020-21.
- On the other hand debit note is issued in the FY 2021-22, hence the availment of ITC in respect of debit note shall be 2021-22 in terms of amended provision of section 16(4) of the Act.

Illustration 2
- Date of Original Invoice: 15-07-2019
- Date of corresponding debit note: 10-11-2020
- Here as per the amended provision of section 16(4) of CGST Act 2017, the relevant Financial year for availment of ITC on such debit note on or after 01.01.2021 shall be FY 2020-21.
- Therefore, registered person can avail the ITC on such debit note till earlier of the following dates:
  - Due date of furnishing of FORM GSTR-3B for the month of September, 2021 or
  - furnishing of the annual return

Issue: 2 Whether is it compulsory to carry physical invoice when e-invoice has been generated

This issue has been faced by many taxpayers and other stakeholders with respect to invoices for which e-invoice has been generated. Industries are seeking clarification that whether the physical copy of invoices is mandatory to carry in the course of movement of goods when the invoice has been issued under rule 48 (4) of the CGST Rules, 2017 (i.e. e-invoicing)

Clarification

For clarification of the issue, CBIC has referred to the relevant rule (Rule 138(1) and 138(2) amended) of CGST Rules 2017. We shall see these rules for understanding and then come to clarification on the issue.

As per Rule 138A [Documents and devices to be carried by a person-in-charge of a conveyance], (1) of the CGST Rules, 2017, the person in charge of a conveyance shall carry—

1. the invoice or bill of supply or delivery challan, as the case, maybe; and

2. a copy of the e-way bill or the e-way bill number, either physically or mapped to a Radio Frequency Identification Device embedded onto the conveyance in such manner as may be notified by the Commissioner.

Further, as per amended Rule 138A(2) of CGST Rules, 2017 (Amended vide notification No. 72/2020-Central Tax dated 30.09.2020)

“In case, the invoice is issued in the manner prescribed under sub-rule (4) of rule 48, the Quick Reference (QR) code having an embedded Invoice Reference Number (IRN) in it, maybe produced electronically, for verification by the proper officer in lieu of the physical copy of such tax invoice”

Therefore, as per Combined reading of Rule 138A(1) and 138A(2), it is very clear that there is no need to carry a physical copy of tax invoice in cases where e-invoice has been generated by the supplier.
Further, after the amendment in the rule 138A(2) the revised rules 138A (2) states in unambiguous words that whenever e-invoice has been generated, the Quick Reference (QR) code, having an embedded Invoice Reference Number (IRN) in it, may be produced electronically for verification by the proper officer in lieu of the physical copy of such tax invoice
Accordingly, it is clarified from the above reasoning and referred explanation that there is no need to carry physical copy of tax invoice in cases where invoice has been generated by the supplier in the manner prescribed under rule 48(4) of the CGST Rules and production of the Quick Response (QR) code having an embedded Invoice Reference Number (IRN) electronically, for verification by the proper officer, it will be sufficient for the purpose.

Issue: 3 Issue related to the section 54(3) of GST Act

The issue raised is whether section 54(3) of the CGST/SGST Act prohibits the refund of unutilized ITC in cases where the exports of goods which are having a NIL rate of export duty.

Clarification

There is the term used in the provision of section 54(3) is “Subjected to export duty” which means where the goods are leviable to actual export duty and suffering export duty at the time of export.
Therefore, following export can be considered as subject to any export duty:
- Where NIL rate is specified in second schedule to the customs Tariff Act, 1975 or
- Goods which are exempted from payment of export duty by virtue of any customs notification or
- Goods which are not covered under Second Schedule to the Customs Tariff Act, 1975.

Hence, CBIC has clarified that only those goods which are actually subjected to export duty,i.e., goods on which some export duty has been paid at the time of export, will be covered under restriction imposed under section 54(3) from availment of refund of accumulated ITC.
Accordingly, NIL rated goods would not be covered by the restriction imposed under the first proviso to section 54(3) of the CGST Act for the purpose of availment of refund of accumulated ITC.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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