In line with recommendations provided during 53rd GST Council Meeting, CBIC has issued clarification vide Circular No. 211/5/2024-GST date 26th June, 2024 regarding time limit under Section 16(4) of CGST Act, 2017 to claim Input Tax Credit of GST paid under reverse charge on inward supplies received from unregistered person.
1. Issue under Consideration
- As per representations received from industries, in some cases, tax is payable by the recipient under reverse charge mechanism on supplies received from unregistered persons such as import of service where no consideration is charged.
- In some cases, Such activity is not considered as supply of service by the recipient due to lack of clarification by the department or any other reasons. Accordingly, no invoice is raised by the taxpayer and no GST liability is discharged under reverse charge mechanism with respect to such supply.
- However, later on, the recipient raises invoices with respect to such service and pay GST under RCM on the basis of some clarification issued by CBIC, judgements, observations pointed out during audit by tax authorities or due to any other reason.
- The recipient pays GST on a later point under RCM alongwith interest and claims Input Tax Credit for such payment accordingly to the date of issuance of invoice.
- E.g.
Date of Import of Service: 01.10.2020
Date of Issuance of Invoice and payment of GST Liability under RCM: 1.10.2022
Date of claiming ITC: According to the date of Invoice, i.e., 01.10.2022
2. Stands taken by the Department
- As per information received by CBIC, some of the department officials are contending that the relevant year of the invoice u/s 16(4) of CGST Act is the year in which such service is received, i.e., FY 2020-21 in the above mentioned example.
- Accordingly, the time limit for claiming Input Tax Credit is September/November month following the year in which such service is received. In the above example, GST officials are contenting that ITC can be claimed upto September/November, 2021.
3. Contention of the Industry
- On the other hand, industry has represented that the invoice in respect of such supplies is issued by the recipient as per section 31(3)(f) of CGST Act.
- Therefore, the relevant year of invoice for the purpose of section 16(4) of CGST Act is the financial year in which such invoice has been issued. Accordingly, ITC should be available on such invoice till the September/ November of the financial year following the financial year in which such invoice has been issued.
- In the above example, the time limit to claim Input Tax Credit should be September/November, 2022.
4. Clarification issued by the CBIC
The CBIC has clarified that:
- Requirement to issue invoice for supplies received from unregistered person
- As per section 16(2)(a) of CGST Act, no registered person shall be entitled to claim ITC in respect of supply of goods or services unless he is in possession of a tax invoice or debit note issued by a supplier or any other tax paying documents.
- As per Rule 36(1)(b) of CGST Rules, 2017, input tax credit shall be availed by the registered person on the basis of an invoice issued in accordance with Section 31(3)(f) of CGST Act, subject to the payment of tax.
- As per Section 31(3)(f) of CGST Act, a registered person, who is liable to pay GST under RCM against supplies received from unregistered person, shall issue an invoice in respect of such supply.
- Accordingly, where the supplier is unregistered and recipient is registered, and the recipient is liable to pay tax on the said supply on RCM basis. The recipient is also required to raise an invoice as per section 31(3)(f) of CGST Act and pay the tax in cash on the same under RCM.
- Relevant Legal Extract
Section 16(4) of CGST Act provides the time limit to avail ITC. Relevant legal extract is reiterated below for ready reference:
“A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the thirtieth day of November following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.”
(Prior to amendment vide the Finance Act, 2022, ITC was not allowed after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains)
- Clarification on availment of Input Tax Credit:
- Section 16(4) links the time limit for availability of ITC with the financial year to which the invoice or debit note pertains.
- Where supplier is unregistered and recipient is registered, the tax has to be paid by the recipient on RCM basis. The recipient is required to issue an invoice as per section 31(3)(f) of CGST Act.
- As per Section 16(2)(a) of CGST Act, ITC cannot be availed by the registered person unless he is in possession of a tax invoice or debit note or such other tax paying documents.
- As per combined reading of the above provisions, ITC can be availed by the recipient only on the basis of invoice or debit note or other duty paying document.
- In case of RCM supplies received from an unregistered supplier, invoice has to be issued by the recipient himself. For the purpose of availment of ITC under Section 16(4), relevant financial year shall be the year to which invoice pertains.
- Where the recipient issues such invoice after the time of supply then he shall be liable for payment of interest on such delayed payment.
- Accordingly, CBIC clarified that in cases of supplies received from unregistered suppliers, where GST is to be paid under RCM, the relevant financial year for calculation of time limit for availment of ITC under section 16(4) of CGST Act will be the financial year in which the invoice has been issued by the recipient subject to payment of tax.
- In case, the recipient issues the invoice after the time of supply then he will be required to pay interest on such delayed payment of tax. Recipients may also attract a penalty under section 122 of CGST Act for delayed issuance of invoice.
