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The validity of Section 16(4) of the CGST Act

CA. CS. Abhay Sharma 
on 09 April 2020


Under GST, there are many restrictions on availing of the input tax credit. One such limitation is present by the way of section 16(4) limiting the date of claiming the input tax credit to the due date filing of the return for September or date of filing of annual return whichever is earlier. Now GST department has started issuing the notices for those assesses that have filed returns after the due date mentioned in section 16(4) and hence, instructing them to reverse the credit that is being claimed in these belated returns. Let's analyse whether such kind of interpretation can be taken:-

1. Section 16(4) reads as follows:

'(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 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 invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier:'

The words here are 'entitled to take' the credit. Words taking of the credit signify fulfilling of the eligibility of the claiming credit and claiming the same in the books of accounts. GSTR-3B is merely a piece of information being passed to the department. Hence, in the case wherea tax invoice is received, received goods, the person selling the goods has paid the tax, and the same has been displayed in GSTR 2A all before the date mentioned in Section 16(4) should not be taken into account of this restriction.

2. Section 16(4) provided the reference of the returns filed under section 39. the relevant portion of Section 39 is mentioned below:

The validity of Section 16(4) of the CGST Act

'(1) Every registered person, other than an Input Service Distributor or a non-resident taxable person or a person paying tax under the provisions of section 10 or section 51 or section 52 shall, for every calendar month or part thereof, furnish, in such form, manner and within such time as may be prescribed, a return, electronically, of inward and outward supplies of goods or services or both, input tax credit availed, tax payable, tax paid and such other particulars as may be prescribed:

Provided that the government may, on the recommendations of the Council, notify certain classes of registered persons who shall furnish a return for every quarter or part thereof, subject to such conditions and safeguards as may be specified therein.'

Rule 61 of CGST dealing with form and manner of filing monthly returns. If we carefully refer to these rules, they are specifying that input tax credit would be auto-populated in the GSTR 3 aftersubmission of GSTR 2 and GSTR 3B would remain a temporary solution till GSTR 1 and GSTR 2 are being postponed. It would be pertinent to know that GSTR 2 never saw the day of light; however, GSTR -2A was made available to the taxpayers at large. If we pay attention to the currently prevailing situation,as per Section 16(2), GSTR 2A was working as sufficient proof of payment and was required to be matched with GSTR-3B. And hence, the auto-population of the credit in GSTR 2A can be termed as claiming of the credit as there is no GSTR – 2 in place. Auto population of credit in GSTR 2A should be deemed to be effective compliance.

3. If we take a view that GSTR-2A is not an adequate proof or return under section 39,then GSTR-2 should be the return under section 39 to prove the claim of a tax credit. GSTR 2 is currently not working and hence it can be said that relevant return under section 39 is not working, under this situation section 16(4) would be in-operative.

4. The purpose of Sec 16 (4) is that if any taxpayer is left to claim any ITC for previous financial year, then he is entitled to claim the left over ITC before the due date of the return for September month of the suceeding fiscal year. It does not bar the claim of ITC by the way of delayed returns if the claim of credit is being made in the respective months and merely there is delay in filing of the returns. Hence, Section 16(4) should not be invoked in the cases where the credit is claimed in the same month return.


5. Section 40 and section 50 of CGST Act, which allows the taxpayers to file the GST Returns beyond the due date by paying late fees and interest on delay payment. There is no restriction being imposed in the said sections that the taxpayer would not be allowed to claim the input tax credit. Hence, there is an anomaly in the CGST Act itself wherein one section is allowing filing of the GST Return belatedly, and another section is trying to deny the credit. Section 16(4) does not begin with a non-obstante clause; hence it cannot be termed that section 16(4) would have an overriding effect on section 40 and section 50.

6. Notification No. 74/2019 Central Tax issued on 26th December 2019 which had waived late fees on the filing of the GSTR 3B from July 2017 to November 2019. The said notification was being issued without any mention of restriction of credit, and the government was issuing the said notification after passing of the dates mentioned in section 16(4) for the year 2017-18 and 2018-19. The intention government was that taxpayers file their return, pay their tax and claim their credit. If the government intended to deny the credit, they would have enforced a different form or might have imposed system restrictions.

7. The question is also pending regarding the fact that whether GSTR 3B is return or not.As per the judgement of Hon'ble Gujarat High Court in case AAP And Co. Vs. Union of India [2019] 107 125 (Gujarat) the court had ruled out that GSTR 3B is not return under section 39. If the GSTR 3B is not return under section 39,then GSTR 9 is the only return under section 39. Hence, the ITC can be claimed on or before the filing of the GSTR 9 return and therefore the last date for claiming ITC in terms of returns filed under Sec 39 would be the date of filing GSTR 9. There is a retrospective amendment treating GSTR 3B as a return under section 39. This amendment has to be seen prospectively as there areplethora of pronouncements by the courts. One such pronouncement is CIT v. Vatika Township Private Limited [TS-573-SC-2014] wherein Hon'ble Supreme court had ruled that retrospective amendments should be there in order to solve problems of the taxpayers and not of the department. Hence, this retrospective amendment is increasing the hardship of the taxpayers, which is not right in law. Thus, even if in case if this amendment is sought good the same would apply prospectively and not retrospectively.

8. If we look at the current situation when a dealer files his returns late, he is subjected to the late fees and interest. Moreover, if such harsh interpretation is being adopted, it would adversely affect many SMEs that would have filed late return due to financial crunches.

9. Section 39(1) of the CGST act talks about the filing of the return along with tax payable basis even section 39(7) dealing with the payment of tax states that


'Every registered person, who is required to furnish a return under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (5), shall pay to the Government the tax due as per such return not later than the last date on which he is required to furnish such return'

Both section 39(1) and section 39(7) allows the filling of GST returns along with tax payable; however, GSTN system is not accepting the return on the payable basis, thereby making it impossible to claim the input tax credit and leave the tax payable pending at the time of filing the return. Hence, if the system itself is not allowing us to file the return then how it is possible to show the credit under GSTR 3B.

10. During the early days of GST there were many glitches that were found in GSTN. There was delay in opening of TRANS-1 infact there was also problem with the migration. Many dealers were not being able to file TRANS-1 or were not able to migrate and many of them had found various technical snags that had forced them to delay the fililng and any disallowance to them on the basis of these reasons would be unreasonable.

11. It would also be worth to address that credit being claimed in not the right of the individual, it is at the mercy of the statue this view is being taken in apex court judgement of Godrej & Boyce Mfg. Co. (P) Ltd. Vs CST, (1992) 3 SCC 624 wherein it was held that it was upto the rule-making authority to specify any kind of restrictions or curtailment of the input tax credit

'We fail to understand how a valid grievance can be made in respect of such deduction when the very extension of the benefit of set-off is itself a boon or a concession. It was open to the rule-making authority to provide for a small abridgement or curtailment while extending a concession. Viewed from this angle, the argument that providing for such deduction amounts to levy of tax either on purchases of raw material effected outside the State or on sale of manufactured goods effected outside the State of Maharashtra appears to be beside the point and is unacceptable. So is the argument about apportioning the sale-price with reference to the proportion in which raw material was purchased within and outside the State.'

However, emphasis should also be given regarding the interpretation of restriction. In any case, if the restriction is being interpreted any credit should not be claimed in the returns filed beyond the limit specified under section 16(4) that would be unreasonable. Treating the date of filing GSTR 3B as date of claiming the credit and disallowing under section 16(4) is harsh and can be definitely challenged before the court of law.

(View expressed are strictly personal)

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