In GST law, eligibility and conditions for taking Input tax credit is governed by section 16 of CGST Act. Sub-section (4) of section 16 establishes a clear timeframe for taxpayers to claim input tax credit (ITC). It promotes efficiency and reduces discrepancies in tax filings.

In this article, we will provide you with the explanation of Section 16 4 of CGST Act. We will also look at the amendment to Section 16(4) of CGST Act and the challenges and impact of Section 16(4) of CGST Act 2017.

What is Section 16(4) of CGST Act—The main objective of Section 16(4) of CGST Act 2017 is to ensure that the claims are made on time.

It is reproduced below for ready reference:

“(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”

In view of the above, section 16(4) of the CGST Act specifies that no registered person can take Input Tax Credit for any invoice or debit note issued against the supply of goods or services after the due date for filing the return for November of the next financial year, or the actual date of filing the annual return for that year.

The wordings "the Thirtieth day of November" was Subs. by Finance Act 2022 dated 30.03.2022 w.e.f. 01.10.2022 by Notification. No. 18/2022-Central Tax dated 28.09.2022 for "due date of furnishing of the return under section 39 for the month of September".

In view of the above, the last date to avail ITC from financial year 2022-23 is 30th November following the end of financial year to which such invoice or debit note pertains.

Challenges faced by taxpayers

Strict Deadlines: Businesses can fail to claim ITC if they do not meet the tight timeframes due to delays in administrative processes.

Increased Compliance Load: Keeping accurate records and filing returns on time can be challenging, which is an additional task for businesses.

Financial Strain: Not being able to claim ITC within the set period can lead to higher costs, which can negatively affect a business’s cash flow and profits.

Reconciliation Difficulties: It can be difficult to match all invoices and ensure credits are claimed by the deadline, especially where there are many transactions.

Businesses have filed writ petitions against the strict deadlines of Section 16(4) of the CGST Act, arguing that they are too harsh and difficult to meet, reference to some writ petition is as follows-

Petitioner has questioned the vires of Section 16(4) of CGST Act which imposes a time limit for availment of Input Tax Credit, as being violative of Articles 14, 19(1)(g) and 300A of the Constitution of India [2020] 29 TAXLOK.COM 069 (Jharkhand)
The subject matter of challenge in the present writ application is to the constitutional validity of Section 16(4) of the GST Act, 2017, the argument is that the taxpayers cannot be made to suffer by not allowing the ITC on account of the failure on the part of the respondents to notify the Forms GSTR - 2 and GSTR - 3 respectively. [2021] 32 TAXLOK.COM 068 (Gujarat)
the vires of Section 16(4) of CGST Act has been challenged on various grounds including that it is an infringement of the fundamental rights guaranteed to the petitioner under Article 14 and 19 (1)(g) and the constitutional right granted under Article 300A of the Constitution of India. [2022] 49 TAXLOK.COM 041 (Patna)

Finally, GST Council meeting in its 53rd GST Council Meeting recommended Relaxation in condition of section 16(4) of the CGST Act as follows:

a) In respect of initial years of implementation of GST, i.e., financial years 2017-18, 2018-19, 2019-20 and 2020-21:

The GST Council recommended that the time limit to avail input tax credit in respect of any invoice or debit note under Section 16(4) of CGST Act, through any return in FORM GSTR 3B filed upto 30.11.2021 for the financial years 2017-18, 2018-19, 2019-20 and 2020-21, may be deemed to be 30.11.2021. For the same, requisite amendment in section 16(4) of CGST Act, retrospectively, w.e.f. 01.07.2017, has been recommended by the Council.

b) with respect to cases where returns have been filed after revocation:

The GST Council recommended retrospective amendment in Section 16(4) of CGST Act, to be made effective from July 1st, 2017, to conditionally relax the provisions of section 16(4) of CGST Act in cases where returns for the period from the date of cancellation of registration/ effective date of cancellation of registration till the date of revocation of cancellation of the registration, are filed by the registered person within thirty days of the order of revocation.

Amendments made to section 16 of the CGST Act

The amendments to section 16 of the CGST Act inserted two new subsections, namely subsections (5) and (6), to address issues related to ITC availment with respect to past financial years. These sub-sections provide retrospective relief to taxpayers by clarifying procedural requirements for rectification.

Sub-section (5): It allows registered persons to claim ITC in any return filed under s. 39 up to 30.11.2021, with respect to invoices or debit notes pertaining to FYs 2017-18 to 2020-21. This change aligns with the clarifications issued during the 53rd GST Council meeting, which aimed to extend the ITC availment period to facilitate compliance.

Sub-section (6): It provides for ITC availment in cases where the registration of a taxpayer is revoked but subsequently restored. Such taxpayers can claim ITC for invoices issued prior to cancellation and post-revocation, subject to specified timelines. The CBIC’s clarification emphasized the importance of providing taxpayers with a fair opportunity to reclaim ITC in these scenarios.

The insertion of section 16(5) and (6) of the CGST Act marks a significant development in the GST framework. It relieves taxpayers who faced issues claiming ITC due to procedural errors, delayed filings, or cancelled registrations. By extending the ITC claim period and establishing a special rectification procedure, the CBIC promotes fairness and allows taxpayers to correct past mistakes without severe penalties.

Procedural clarification— Circular No. 237/31/2024–GST issues regarding implementation of provisions of sub-section (5) and sub-section (6) in Section 16 of CGST Act, 2017.

This Circular outlines the approach that tax authorities and taxpayers should adopt in light of the retrospective amendments. It also prescribes the steps for availing the benefit of these changes in five distinct scenarios:

Cases where no demand notice or statement has been issued: If no notice or statement under s. 73 or s. 74 has been issued, but investigations were ongoing regarding the alleged wrongful availment of ITC; tax authorities are now required to recognize the retrospective changes and take appropriate action. No further proceedings are required if only an intimation (Form DRC-01A) was issued.

Cases where demand notice has been issued but no order has been passed: Where a demand notice or statement under section 73 or 74 has been issued, but no final order has been passed; the adjudicating authority is directed to take note of the amendments and pass an appropriate order in accordance with the updated provisions of ss. 16(5) and 16(6). This approach mirrors the steps outlined in the CBIC’s subsequent clarifications to ensure procedural consistency.

Cases where orders have been passed and appeals are pending: If an order has already been passed under s. 73 or s. 74, and an appeal is pending before the Appellate Authority under s. 107, the Appellate Authority must consider the retrospective amendments and pass a fresh order taking the changes into account. This alignment with the CBIC’s procedural framework helps ensure fair treatment of pending appeals.

Cases where revisional authority proceedings are pending: In cases where the revisional authority has initiated proceedings under s. 108 but has not issued an order, the Revisional Authority is required to take cognizance of the retrospective amendments and pass orders accordingly.

Cases where orders are final, and no appeal has been filed: If an order has been passed under ss. 73, 74, 107, or 108, no appeal has been filed; taxpayers may still avail themselves of the benefits under the retrospective amendments. A special rectification procedure, as notified under Notification No. 22/2024 - Central Tax, dated 08.10.2024, can be invoked.

In conclusion, Section 16(4) of the CGST Act enforces strict deadlines for claiming ITC, which can create challenges for businesses

FOR FREE CONDUCTED TOUR OF OUR ON-LINE LIBRARIES WITH OUR REPRESENTATIVE-- CLICK HERE

Time Limit for Availment of ITC: Retrospective Amendments and Legal Challenges

FOR ANY SUPPORT ON GST/INCOME TAX