Section 16(5) & (6) of CGST- A gesture of relief

Under the whole concept of GST, the input tax credit can be said the main area of the consideration of the taxpayer as well as the GST department. Now a days, there are various measures which are initiated by the department to keep an eye to check the compliances of ITC for example introduction of opening balance of ITC credit reversal & reclaim statement, Introduction of RCM Liability/ITC Statement etc. Similarly, some relaxations are also provided in respect of claim of input tax credit. The proposal for insertion of sub section (5) & (6) in section 16 of CGST Act 2017 is one of them. In this article we will discuss the provisions of section 16(5) & (6) of CGST Act 2017 which are yet to be notified.

Section 16 of CGST Act contains the provisions relating to the eligibility and conditions for availing the input tax credit. The sub section 4 of section 16 states that 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 30th November following the end of F.Y to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.

This period was extended further for the financial year 2017-18 by inserting a proviso under section 16(4), thereby allowing the further extended period till the filing of GSTR-3B u/s 39 for the month of March, 2019.

However, some times the taxpayer avails the input tax credit in respect of certain invoices or debit notes even after the time period specified in section 16(4) of CGST Act 2017 and the department thereafter initiates the recovery proceedings against those taxpayers and ask the taxpayers to reverse such ITC along with interest and penalty. In such situation the taxpayers have no other option available with them to defence their case, hence they have to reverse the input tax credit which was availed by violating the provisions of section 16(4) of CGST Act 2017.

The GST Council in its 53rd meeting proposed amendment in Section 16 that the ITC on the invoices and other eligible documents for availing such ITC for the FY 2017-18, 2018-19, 2019-20 and 2020-21 may be allowed up to 30.11.2021. The Finance Minister has also proposed in the Finance Act 2024 vide section 118 of Finance Act 2024, the Insertion of new sub sections in Section 16 of CGST ACT. The proposal was to insert new sub-sections 16(5) and (6) after sub-section (4) of Section 16 in the CGST Act 2017, thereby intending to regularize the Input Tax Credit taken after the limitation period as prescribed in Section 16(4) of the CGST Act, 2017.

In the recent council meeting i.e, 54th the GST council has again recommended that section 118 and 150 of the Finance (No. 2) Act, 2024, which provides for insertion of sub-section (5) and sub-section (6) in section 16 of CGST Act, 2017 retrospectively with effect from 01.07.2017, may be notified at the earliest.

The provisions of said sub sections are summarised as follows;

Sub section 5 of section 16 of CGST Act 2017 states that in respect of an invoice or debit note for supply of goods or services or both pertaining to the Financial Years 2017-18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take input tax credit in any return u/s 39 which is filed up to 30.11.2021.

Further, as per sub section 6 of section 16 of CGST Act 2017 where the GST registration is cancelled u/s 29 and subsequently the cancellation of registration is revoked, the said person shall be entitled to take ITC in respect of such invoice or debit note, in GSTR-3B,

(i) filed up to 30th November following the F.Y to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier; or

(ii) for the period from the date of cancellation of registration or the effective date of cancellation of registration, as the case may be, till the date of order of revocation of cancellation of registration, where such return is filed within 30 days from the date of order of revocation of cancellation of registration,

whichever is later.

Thus from the above provisions it is clear that said sub sections were inserted with an intention to provide the relief to the taxpayers who has availed the ITC upto 30.11.2021 in respect any invoice or debit notes pertaining to F.Y 2017-18 to F.Y. 2020-21. Further it is important to know that said sub sections are proposed to be inserted with effect from 01.07.2017 i.e., retrospectively.  

As the said sub-sections were proposed to be inserted on retrospective basis, now the next question that comes here is that if some taxpayers has already reversed their input tax credit due to the violation of section 16(4), whether the refund would be available to said taxpayers who have either voluntarily reversed the said ITC or on receipt of any communication (whether ASMT-10 or SCN) from the department in this regard? 

In this respect it is important to know that vide Section 150 of Finance Act 2024 it is clearly stated that no refund shall be made of all the tax paid or the input tax credit reversed, which would not have been so paid, or not reversed, had section 118 been in force at all material times. Thus, if some taxpayers have already reversed their input tax credit due to the violation of section 16(4), in such situation no refund would be available to the said taxpayers.  

Clarification in respect of existing cases:
In 54th GST Council meeting it has also recommended that a special procedure for rectification of orders may be notified under section 148 of the CGST Act, to be followed by the class of taxable persons, against whom any order under section 73 or section 74 or section 107 or section 108 of the CGST Act has been issued confirming demand for wrong availment of input tax credit on account of contravention of provisions of sub-section (4) of section 16 of the CGST Act, but where such input tax credit is now available as per the provisions of sub-section (5) or sub-section (6) of section 16 of the CGST Act, and where appeal against the said order has not been filed. The Council also recommended issuance of a circular to clarify the procedure and various issues related to implementation of the said provisions of subsection (5) and sub-section (6) of section 16 of CGST Act, 2017.

Thus from the above detailed discussion we can conclude the following;

Conclusion:  The proposed insertion of sub section (5) & (6) of section 16 of CGST Act 2017 is made to provide a relief to the taxpayers, by allowing the ITC in respect of any invoice or debit note issued during F.Y 2017-18 to 2020-21 till 30.11.2021. Also a recommendation has been made to allow revision of the order of old cases by allowing the ITC.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.