CBIC Issued Detailed Clarification on Manner of Claiming ITC Under Section 16(5) or (6) of CGST Act, 2017

New Section 16(5) and (6) have been inserted in the CGST Act, 2017 through section 118 of the Finance (No. 2) Act, 2024 to extend the time limit to claim ITC in certain cases with retrospective effect. These sub-sections have been made effective from 1st July 2017. The CBIC has issued a detailed clarification on issues related to the implementation of Section 16(5) and (6) vide circular No. 237/31/2024-GST dated 15th October 2024.

This article discusses the issues clarified by the CBIC concerning Section 16(5) and (6)

Issues Clarified By CBIC Concerning Section 16(5) and (6)

1. Brief analysis of Provisions of Section 16(5) and (6)

General Provision for Claiming ITC:

As per Section 16(4), ITC can be claimed until 30 November of the following financial year to which such invoice or debit note pertains or the date of filing of the Annual Return, whichever is earlier.

Section 16(5): Extended time limit for claiming ITC for FY 2017-18 to FY 2020-21

Section 16(5) specifies that Input tax credit for invoice or debit notes for the Financial Years 2017-18, 2018-19, 2019-20, and 2020-21 can be claimed in any return filed under section 39 up to 30 November 2021.

Section 16(6): Extended date of claiming ITC where GST registration is canceled

Where GST registration of a person is canceled and subsequently revoked and such person is entitled to claim ITC concerning an invoice or debit note under section 16(4) on the date of cancellation of registration then the registered person shall be entitled to claim ITC to such invoice by later of following dates:
- Upto 30th November of the Financial year following the financial year to which such invoice or debit note pertains or date of filing of annual return, whichever is earlier; or
- for the period from the date of cancellation of registration till the date of order of revocation, where such return is filed within 30 days from the date of order of revocation of cancellation of registration;

Section 150 of Finance Act, 2024

As per Section 150 of the Finance Act, 2024, no refund of any tax paid or ITC reversed shall be granted on account of such retrospective insertion of Section 16(5) and (6) of the CGST Act

2. Amendment in Section 148 of CGST to handle Assessment orders

Vide Notification No. 22/2024 – Central tax dated 8th October 2024, CBIC specified special procedure under section 148 where orders have been issued under sections 73 74 107, or 108 on account of ineligible ITC under section 16(4) of CGST Act.
However, such ITC is now allowed under section 16(5) or (6) of the CGST Act.

3. clarification

CBIC received various representations to clarify various issues related to availing of the benefit of Section 16(5) and (6) of CGST Act, 2017 by the taxpayer against whom the demand is issued for wrong advancement of ITC under section 16(4) of CGST Act.

CBIC issued clarification concerning the following matters:

3.1 Where no demand notice/statement has been issued under section 73 or section 74 of the CGST Act

Where investigation or proceedings in respect of wrongful availment of ITC under section 16(4) of CGST Act has been initiated but no demand notice or statement under section 73 or section 74 has been issued.
Now the taxpayer is entitled to claim such ITC under Section 16(5) or Section 16(6) of the CGST Act.
In such a case, the proper office shall take cognizance of Section 16(5) or 16(6) of the CGST Act inserted retrospectively with effect from 01.07.2017 and take further appropriate action.
The same shall apply in cases where Form DRC-01A has been issued but no demand notice/statement under section 73 or section 74 of the said Act has been issued.

3.2 Where demand notice or statement has been issued under section 73 or section 74 of CGST Act but no final order has been issued

In such cases, the Adjudicating Authority shall take cognizance of the retrospective insertion of Sections 16(5) and 16(6) of the CGST Act with effect from 01.07.2017 and shall pass the appropriate order.

3.3 Where an order under section 73 or section 74 of the CGST Act has been issued an appeal has been filed against such order with the Appellate Authority but no order is issued by the Appellate Authority:

In such cases, the Appellate Authority shall take cognizance of Section 16(5) or (6) of the CGST Act and shall issue the order accordingly.

3.4 Where an order under section 73 or section 74 of the CGST Act has been issued and Revisional Authority has initiated proceedings under section 108 of the CGST Act but no order is issued by the Revisional Authority:

In such cases, the Revisional Authority shall take cognizance of Section 16(5) or (6) of the CGST Act and shall issue the order accordingly.

3.5 Where an order is issued under Section 73 or 74 of CGST Act but no appeal is filed against the same with the Appellate Authority or the Revisional Authority or Order is issued by the appellate authority or Revisional Authority but no appeal is filed against the same with Appellate Tribunal

There may be a case, where an order is issued under Section 73 74 107, or 108 confirming demand on the ground of wrong availment of ITC under section 16(4) of CGST Act and such ITC is not available by Section 16(5) or 16(6) of CGST Act and no appeal is filed against such order.
In such case, the concerned taxpayer may apply for rectification of such order by the special procedure defined under section 148 of CGST Act vide Notification No. 22/2024 – Central tax dated 08.10.2024, within 6 months from the date of issuance of the said notification.

4. Manner of filing of an application under Section 148 of CGST Act

Application against an order issued under section 73 or 74 of the CGST Act
1. The application for rectification against an order issued under section 73 or 74 of the CGST Act can be filed post-login on the GST portal at the following path:

Dashboard > Services > User Services > My Applications.

Select “Application for rectification of order” in the Application Type field.
Then, click the NEW APPLICATION button.

Application against an order issued under section 107 of the CGST Act
1. The application can be filed post-login at the following path:

Dashboard > Services > User Services > View Additional Notices/Orders

Once the “Additional Notices and Orders” page is displayed, Click the View hyperlink to go to the Case Details screen of the issued Notice/Order.
On the case details page, The APPLICATIONS tab is selected by default. Select the ORDERS tab and click the “Initiate Rectification” link.

Application against an order issued under section 108 of the CGST Act:
1. The application shall be filed at the following path:

Click Dashboard > Services > User Services > View Additional Notices/Orders

Additional Notices and Orders > Case Details Screen
The NOTICES tab is selected by default.
To submit a Rectification Request against the Revision Order issued to you by the Revisional Authority, select the ORDERS tab and click the “Initiate Rectification” link.

The applicant shall furnish the details of ITC eligibility under Section 16(5) or 16(6) of the CGST Act in the format given in Section 148 along with the application.

5. Manner of handling application

Such application for rectification shall be dealt with by the proper officer who had passed the order for which the said rectification is filed.
The said officer shall take a decision and shall issue the order within 3 months from the date of such application.
The proper officer shall upload the summary of the rectified order electronically in:
- FORM DRC-08- where the original order is issued under section 73 or section 74;
- FORM GST APL-04: where original order is issued under section 107 or section 108 of CGST Act.

While processing the rectification application, the proper officer shall also consider other grounds, if any, for denial of ITC other than Section 16(4) of the CGST Act invoked in the notice issued under Section 73 or Section 74.
Where the rectification adversely affects the taxpayer, the principles of natural justice shall be followed by the proper officer.
Appeal against the rectified order can be filed under section 107 or section 112 of the CGST Act, as the case may be, within the time limit specified therein.

6. Condition of filing rectification application under section 148

The circular has clarified that the application under section 148 for rectification shall be filed only where the issue or one of the issues to which demand pertains is for wrong availment of ITC under Section 16(4) of CGST Act and such ITC is not allowed under Section 16(5) or (6) of CGST Act.
Where no such issue is involved, the taxpayer is required to apply for rectification only under section 161 of the CGST Act within the time limit specified therein.
Where the application is filed under section 148 even without any matter of ITC allowable under section 16(5) or (6) of the CGST Act then such an application would be summarily rejected by the proper officer with detailed remarks

Conclusion

The Clarification on the manner of handling demand notices or orders where ITC is allowed under section 16(5) or (6) was much needed. The taxpayers and the GST officers will have clarity on how to proceed and handle such rectification applications and scenarios where such applications can’t be filed.