Is there any time limit to avail ITC of taxes paid under RCM

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Provision related to eligibility of ITC of the Taxes paid under RCM under Sec 16(4)

Before we discuss the time limit to availed the ITC of taxes paid under RCM, lets first discuss the restriction provided under sec 16 (4) for availing the ITC beyond a specific time limit.

As per the provision of Sec 2 (62) of CGST Act, Taxes payable under the provision of Sec 9 (3) /(4) is considered as “Input Tax” and sec 16 provides eligibility and condition for taking the Input Tax Credit.

Further Section 16(4) of the Central Goods and Services Tax (CGST) Act, 2017 stipulates the time-limit for claiming ITC. The main clause therein reads (emphasis added):

“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:”

Some experts having a view point that since the payment of taxes already made into the government treasury, hence ITC  become the right of the payer hence such time related restriction are not legally valid

It is relevant in this context to refer the Hon’ble Supreme Court’s (SC) decision in ALD Automotive Private Limited v. Commercial Tax Officer – [2018] 99 taxmann.com 202 (SC) – where it was held in favour of the Revenue that conditions (including time limit) can be imposed for claiming ITC. The relevant extract(s) are reproduced hereunder:

“32. The input credit is in nature of benefit/ concession extended to dealer under the statutory scheme. The concession can be received by the beneficiary only as per the scheme of the Statute. … This Court held that Rule making authority can provide curtailment while extending the concession.

36. This Court further held that it is a trite law that whenever concession is given by a statute the conditions thereof are to be strictly complied with in order to avail such concession. …
37. … The conditions under which Input Tax Credit is to be given are all enumerated in Section 19 as noticed above. The condition under which the concession and benefit is given is always to be strictly construed. in event, it is accepted that there is no time period for claiming Input Tax Credit as contained in Section 19(11), the provision become too flexible and give rise to large number of difficulties including difficulty in verification of claim of input Credit. …”

Therefore sec 16 (4) has authority to restrict the claim of ITC beyond a specific time period. However these may be challange in courts and judical fora will apply above principles to hold it Ultra-vires.

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Whether the Term “Invoice” used in Sec 16 (4) includes the RCM Invoice

Sec 16 (4) restrict the ITC in respect of an ‘Invoice’, Here we need to understand, whether Invoice issued for the purpose of RCM supply is an Invoice for the purpose of sec 16 (4).

The term “Invoice” is defined in sec 2 (66) of CGST Act as, “Invoice or Tax Invoice means the tax invoice referred to in Section 31.”

Sub-sections (1) and (2) of section 31 ibid mandates issue of ‘Tax invoice’ by the supplier for making taxable supplies of goods and services, respectively, apart from specifying a time-limit for issue of such invoice(s). Further, section 31(3)(f) ibid reads:

“a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9 shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both;”

From a combined reading of the aforesaid provisions, it is evident that,

• Registered recipient issue an Invoice – where supply is received from unregistered Supplier ( Colloquially known as ‘Self Invoice’)
• Supplier shall issue the Invoice – Where supply is received by the registered supplier.

Further it is mentioned that such recipient shall issue invoice on the date of receipt of goods and services or both.

Rule 46 of CGST Rules, 2017 (which prescribes mandatory contents of a tax invoice) applies to RCM self-invoice too — this is evident from the second proviso therein. Further, such mandatory contents include inter alia the quantum of GST payable;

Also, Rule 36(1) ibid mandates availability of invoice issued by supplier under section 31 of the CGST Act or RCM self-invoice issued under section 31(3)(f) ibid (subject to payment of tax) for availing ITC.

Hence the term, Invoice’ used in Sec 16 (4) include the Invoice under sec 31 of GST Act issued by the recipient / supplier for the supplies made under RCM.

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When should be the RCM invoice be Raised?

A close look at Section 31 ibid indicates that, the registered recipient shall issue invoice on the date of receipt of goods and services or both. This section also prescribe the time limit for raising: (i) tax invoice by the supplier of goods / services; (ii) revised invoice; (iii) receipt voucher; (iv) payment voucher; (v) invoice in case of continuous supply of goods or services; and (vi) invoice in case of goods sent or taken on approval for sale or return.

Where a registered person fails to issue the Tax invoice within the time limit at specify under sec 31 then he may end up in paying interest and penalty. There is no specific provision for levying the penalty under sec 122 however general penalty under sec 125 may be attracted by the proper officer.

We have discuss in our previosu blog that, Interest on ITC availed erroneously but not utilised not required to paid.

Where the amount of ITC of tax paid under RCM  is substantial, one may choose to take a hit of penalty in term of provision of sec 125, If ultimately he become eligible to avail ITC .

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Can the ITC be availed on the basis of belated Invoice?

The next question arise, If one has preferred to issue belated invoice along with penalty as discussed supra, Will he become eligible to take Input tax credit based on such belated invoice.

For E.g. : Mr A has received some supply during the month of Feb 2019 on which he is liable to pay tax under reverse charge basis. However he fails to do so till Sept 2019.  Thereafter he raise Self invoice dated November 2019, any pay the taxes along with applicable interest and penalty. Now his contention is, since the invoice is dated November 2019 hence credit in respect of such invoice can be claimed upto the due date of filing return of September 2020 in light of provision of sec 16 (4).

However a close reading of sec 16 (4) suggests that  input tax credit in respect of any invoice cannot be claimed 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 pertains or furnishing of the relevant annual return, whichever is earlier:”  

Section 16 (4) uses the term, Financial year to which such invoice pertains, the emphasis should be place on word pertains, which connotes belongs, related to. Which means though such invoice is issued during the month of November 2019 but its pertains to F Y 2018-19 hence ITC in respect of such invoice cannot be availed after the due date of furnishing return u/s 39 i.e. 20th Oct 2019 and sec 16 (4) have authority to restrict the ITC in respect of said Invoice. And one can say that, there is a time limit to avail ITC of taxes paid under RCM.

In this context, it is pertinent to refer the proviso to section 37(3) ibid, which reads that:

“Provided that no rectification of error or omission in respect of the details furnished under sub-section (7) shall be allowed after furnishing of the return under section 39 for the month of September following the end of the financial year to which such details pertain, or furnishing of the relevant annual return, whichever is earlier:”

Section 37(1) ibid mandates filing of GSTR-1, which is prescribed as part of the CGST Rules. Hence, from the said proviso, it can be deciphered that rectification of any omission in GSTR-1 (say, of the period 2018-19) is allowed only up to earlier of the following dates: (i) date of filing GSTR-3B of September 2019; and (ii) date of filing GSTR-9 of 2018-19.

At this juncture, some readers may point that the aforesaid time limit does not apply to RCM self-invoices since: (i) Section 37(1) ibid applies only to details furnished in GSTR-1, which are communicated to the recipient; and (ii) that RCM self-invoice is not communicated to the recipient. However, it is well known that even details related to B2C and export invoices furnished in GSTR-1 (which are not communicated to recipients) cannot be edited beyond the said time limit. Hence, it appears that the proviso to Section 37(3) ibid applies to all details furnished in GSTR-1, whether communicated to the recipient or not. Also, under the self-assessment regime, it is not feasible to expect that error or omission in GSTR-1 be rectified irrespective of time limit. In view of the foregoing, any omission to include the serial numbers of RCM self-invoices (for goods / services received in 2018-19) cannot be rectified beyond the date of filing GSTR-3B of September 2019, since GSTR-9 for 2018-19 could not have been filed before such date.

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Premise of Press release dated 03 July 2019

Some taxpayer may refer the paragraph (g) of the Ministry of Finance press release dated July 03, 2019. The relevant extract of the said release reads:

“Many taxpayers have requested for clarification on the appropriate column or table in which tax which was to be paid on reverse charge basis for the FY 2017-18 but was paid during FY 2018-19. It may be noted that since the payment was made during FY 2018-19, the input tax credit on such payment of tax would have been availed in FY 2018-19 only. Therefore, such details will not be declared in the annual return for the FY 2017-18 and will be declared in the annual return for FY 2018-19. …”

At the outset the tenability of such press release under the law is measly, But lets sake of discussion we presume that credibility of such press release shall hold good however it is pertinent to note that this clarification is covering the period of Financial year 2017-18, where payment was made during the FY 2018-19, mostly for the reason that a proviso to sec 16 (4) has been inserted which has extended the due date for availing the ITC till March 2019 subject to fulfillment of certain conditions. Therefore the ITC of taxes paid under RCM shall be available upto the month of March 2019. However if the taxes paid in respect of scuh supplies post March 2019 then ITC won’t be allowed. It is pertinent to note that such press release doesn’t the cover period from FY 2018-19 onward.

In view of this, even the ITC pertain the FY 2018-19 cannot be availed if the same is paid after 20^th April 2019 i.e. the due date of filing GSTR-1 of March 2019, And FY 2018-19 are out of the scope of such clarification.

 Conclusion

In view of the foregoing, We can say, only on payment of tax, the right to avail credit under the relevant invoice arises. In other words, the time limits in terms of Section 16(4) can be calculated from the date when the said invoice for self-supply was raised

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