Section 16(4) of the CGST Act, 2017 sounds like a nightmare to taxpayers whose Input Tax Credit is disallowed by the Department. The significance of the Section had not been realised by the taxpayers till the time they started receiving notices from the Tax Authorities. The Department has been levying demands for the following cases:
- Form GSTR 3B filed beyond the timeline given under Section 16(4) by the taxpayer. Accordingly, ITC is disallowed to the extent claimed in that particular month (i.e. GSTR 3B claimed for the month of March 2023 after the due date given under section 16(4), i.e. 30 November 2023, ITC for the month of March 2023 is disallowed)
- ITC claimed in any month beyond the timeline given under Section 16(4) i.e. ITC for an invoice of March 2023 claimed in Return for the month of November 2023).
- Form GSTR 3B / GSTR 1 filed by the supplier of the taxpayer beyond the time limit given under section 16(4) i.e. ITC for an invoice of March 2023 claimed in Return for the month of March 2023 but tax paid by the supplier after November 2023.
Before understanding the applicability of section 16 (4), it is important to understand that when Section 16 (4) has been untouched since the introduction of the CGST Act, 2017. When GST was introduced in 2017, there was a concept of filing GST monthly returns under Form GSTR 1, GSTR 2 and GSTR 3. However, subsequently due to operational issues and legal issues, GST returns were filed in form GSTR 1 and Form GSTR 3B. With this change in the law and operation, there was no change in Section 16(4). Under the old provisions, ITC availment was not linked to payment of GST liability. Further there was no restriction in filing of Form GSTR 2 if GSTR 3 has not been filed for the previous month. The GST law at the time of introduction and as on today different.
There are plethora of High Court Judgments of the above judgment with diverse views. The following is the position taken the different Courts for applicability of Section 16(4):
- High Court Rulings in Favour of Allowing ITC even if the returns are filed late
- Tvl.Kavin HP Gas Gramin Vitrak vs The Commissioner of Commercial Taxes W.P.(MD).Nos.7173 and 7174 of 2023 and W.M.P.(MD)Nos.6764 and 6765 of 2023
- High Court Rulings in Against of Allowing ITC
- Jain Brothers vs Union of India (W.P.(T)No.191/2022)
- Gobinda Construction vs Union of India 9108 of 2021
- Tirumala Konda Plywoods vs The Assistant Commissioner (W.P.No.24235 of 2022)
- M/s. BBA Infrastructure Limited Vs Senior Joint Commissioner MAT NO. 1099 OF 2023, (I.A. NO. CAN 1 OF 2023)
Relevant extract of Section 16 (2) and Section 16 (4) of the CGST Act, 2017, are reproduced for your ready reference as Annexure A.
The following are the common grounds for disputing the availability of ITC though the credit has been disallowed under section 16(4):
- Section 16(2) starts with a non-obstacle clause, i.e. “(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless”. This gives the Section 16(2) of power to override the other provisions of the section. Accordingly, ITC shall be allowed if all the conditions of the Section are satisfied. Section 16 (4) gives the taxpayers time limit to avail the Input tax credit upto 30th November of the Subsequent financial year or filing of Annual return whichever is earlier.
- ITC has been availed through books. However, under Form GSTR 3B, the Taxpayers are able to utilise the credit for payment of liabilities.
- Once the taxpayer has filed the GSTR 3B along with payment of liabilities, interest and late fees, the returns are to be considered to be filed within time limit.
Such cases not only confuse the taxpayers but also reflects the inconsistency in the Law when it comes to unprecedent biggest tax reform in Indirect Tax. Though the said matter is before the Supreme Court in case of Shanti Motors v. Union of India & Ors. [Special Leave Petition (Civil) Diary No(s). 4474/2024] and Mrityunjay Kumar v. The Union of India & Ors. [2024 (1) TMI 288 - SC ORDER]. Further, in the past the Supreme Court has been considerate about the issues the taxpayers have to face and given the Judgments accordingly. The Taxpayers urge the GST Council to clarify the same through circular / amendments so that they don’t have face litigations.
Conclusion
Considering the above, we suggest the taxpayers to file the returns timely to avoid getting into litigation for availability of Input tax credit. Further, we also suggest taxpayers to timely reconcile their input tax credit register to avoid lapse of input tax credit due to non-filing of returns or inability to suppliers to disclose correct details in their GST returns filed under Section 37 of the CGST Act, 2017.
Disclaimer: The information provided in this document is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein.
Annexure A
Section 16. Eligibility and conditions for taking input tax credit.-
…
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;
(b) he has received the goods or services or both.
Explanation.- For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services-
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;
(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be paid by him along with interest payable under section 50, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon.
…
(4) 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.
Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.
CAclubindia
