Circular 211 - A Detailed Analysis

As we know that there is a concept of RCM under the GST law through which the liability to tax is shifted from the supplier to the recipient. The list of goods on which RCM is applicable is given under Notification No. 04/2017 Central Tax (Rate) dated 28.06.2017 and the list of services which are covered under RCM are given in Notification 13/2017 CT (R) dated 28.06.2017. The recipient who deposits the tax under RCM can also claim the input tax credit in respect of the same. However, some times the situation arises where the RCM is not deposited in respect of particular service due to any reason and when it comes into the knowledge of the registered person the time limit to claim ITC given under section 16(4) has already been expired.  Now the question arises whether ITC would be eligible in respect of such tax deposited under RCM, as the time period to claim ITC has been expired.  To clarify the same the CBIC has issued Circular No. 211/5/2024 dated 26.06.2024. In this article we are going to discuss in detail about such circular.

Circular No. 211/5/2024 provides clarifications in relation to the time limit for availing Input Tax Credit under Section 16(4) of the CGST Act for supplies received from unregistered persons under Reverse Charge Mechanism (RCM).  Before going in to detailed discussion about said circular let’s discuss about some basic provisions relating to RCM and input tax credit, so that the circular 211 can be understood in better way.

Section 31(3)(f) of CGST Act 2017 states that a registered person who is liable to pay tax under RCM 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.

Thus from section 31(3)(f) it is clear that if any goods or services on which RCM is applicable and the supplier is an unregistered person, then the recipient has to issue a self invoice. Further, as per section 16(2)(a) of CGST Act, 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 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.

Also Rule 36(1)(b) of CGST Rules, 2017 prescribes that input tax credit shall be availed by a registered person on the basis of an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31 of CGST Act, subject to the payment of tax. Thus in case of RCM the tax paying document would be the self invoice issued by the recipient.

As we know that under section 16(4) of CGST Act 2017 the time limit to claim the ITC is given which is 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.

Till now we have discussed that if any goods or services on which RCM is applicable and the supplier is an unregistered person, then the recipient has to issue a self invoice and said self invoice would be considered as the tax paying document for the purpose of availment of ITC and the time limit to claim ITC as per section 16(4) is the earlier of 30^th November following the end of financial year or furnishing of the relevant GSTR-9.

The said circular 211 clarifies that in case the supplies received from unregistered suppliers, where tax has to be paid by the recipient under reverse charge mechanism (RCM) and where invoice is to be issued by the recipient of the supplies in accordance with section 31(3)(f) of CGST Act, the relevant financial year for calculation of time limit for availment of input tax credit under the provisions of section 16(4) of CGST Act will be the financial year in which the invoice has been issued by the recipient under section 31(3)(f) of CGST Act, subject to payment of tax on the said supply by the recipient and fulfilment of other conditions and restrictions of section 16 and 17 of CGST Act. In case, the recipient issues the invoice after the time of supply of the said supply and pays tax accordingly, he will be required to pay interest on such delayed payment of tax. Further, in cases of such delayed issuance of invoice by the recipient, he may also be liable to penal action under the provisions of Section 122 of CGST Act.

Thus, said circular clarifies that the relevant financial year for calculating the ITC time limit is the year in which the recipient issues the invoice under Section 31(3)(f), not when the supply was received. This interpretation aims to resolve disputes and provide clarity for businesses dealing with RCM supplies from unregistered entities.

However, it is to be noted that said circular provides clarification only for RCM supplies received from unregistered suppliers, hence the benefit of circular may not extend to other RCM supplies received from registered suppliers (for e.g. registered Goods Transport Agency, etc.).

Conclusion: Where the tax is to be paid under RCM in respect of supplies received from un registered supplier and where self invoice is issued by recipient, the relevant F.Y for calculation of time limit for availment of ITC will be F.Y in which self invoice has been issued.

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.