Whether recent amendment in section 16(5) beneficial for all dealers

Whether recent amendment in section 16(5) beneficial for all dealers?

The recent amendment in Section 16(5) of the CGST Act, 2017, extends the time limit for claiming Input Tax Credit (ITC) for past financial years. Specifically, it allows registered taxpayers to claim ITC for invoices or debit notes pertaining to the Financial Years 2017-18, 2018-19, 2019-20, and 2020-21 in any GST return filed up to November 30, 2021. This change is aimed at giving businesses more time to rectify past ITC claims and ensure compliance.

Sub-section (4), sub-section (5) and sub-section (6) of section 16 of the CGST Act are 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.

(5) Notwithstanding anything contained in sub-section (4), 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 under section 39 which is filed upto the thirtieth day of November, 2021.

(6) Where registration of a registered person is cancelled under section 29 and subsequently the cancellation of registration is revoked by any order, either under section 30 or pursuant to any order made by the Appellate Authority or the Appellate Tribunal or court and where availment of input tax credit in respect of an invoice or debit note was not restricted under sub-section (4) on the date of order of cancellation of registration, the said person shall be entitled to take the input tax credit in respect of such invoice or debit note for supply of goods or services or both, in a return under section 39,––

(i) filed upto thirtieth day of November following the financial year 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 thirty days from the date of order of revocation of cancellation of registration, whichever is later.”

The amendment to Section 16(5) specifically focuses on extending the time limit for claiming ITC on older invoices from the fiscal years 2017-18 to 2020-21. This means that registered persons can now claim ITC on invoices or debit notes for these years in any return filed up to November 30, 2021.

The amendment primarily benefits those dealers who may have missed out on claiming ITC for past financial years due to various reasons such as:

• Delayed issuance of invoices or debit notes by suppliers.

• Oversight or errors in matching invoices in GSTR-2A.

• Lack of awareness regarding the deadlines for claiming ITC.

Notification No. 22/2024-Central Tax, issued on October 8, 2024, introduces a special procedure for rectifying demand orders related to incorrect Input Tax Credit (ITC) claims, particularly for violations of Section 16(4) of the CGST Act.

It allows for the rectification of demand orders where ITC was claimed incorrectly under Section 16(4). This is now permissible under the newly inserted sub-sections (5) and (6) of Section 16.

Registered taxpayers who have received orders under Sections 73, 74, 107, or 108 of the CGST Act for improper ITC claims are eligible to apply for rectification.

Taxpayers must submit an electronic application through the GST portal within six months from the notification date. Along with the application, relevant details must be provided as per the annexure attached to the notification.

The concerned officer must issue a rectified order within three months of receiving the rectification request.

Eligibility for Rectification procedure- The taxpayer can apply for rectification if-

• The ITC is now available for claim under section 16(5) or 16(6)

• No appeal has been filed against the order

Accordingly, if an appeal has already been filed u/s 107 or 108, the taxpayer cannot use this special rectification procedure. However, he may choose to withdraw the appeal to become eligible for rectification.

If the rectification process adversely affects the registered person, the principles of natural justice must be followed, ensuring that the person is provided a fair opportunity to be heard before any adverse decision is made.

While the amendment is certainly beneficial to many dealers, especially those who missed claiming ITC for the financial years 2017-18 to 2020-21, it is not equally beneficial for all. Here's why:

1. Dealers Who Have Already Filed All Returns Accurately: For businesses that have already been diligent in filing returns and have claimed all their ITC in a timely manner, this amendment offers no additional benefit. These dealers have already complied with the earlier deadlines and do not need the extended time period.

2. Dealers Who Have Not Maintained Proper Records: The extended deadline is only helpful if businesses can trace back old invoices or debit notes and claim the ITC. Dealers who have poor record-keeping or have lost track of past transactions may not be able to take advantage of this extension.

3. Dealers in Exempt or Non-taxable Goods and Services: Businesses dealing in exempt supplies or those primarily engaged in providing non-taxable services may see no direct benefit from this amendment since they are not eligible to claim ITC in the first place.

4. Dealers who have filed an appeal and it is still pending: Taxpayers who has already filed an appeal in respect of input tax credit, he cannot apply for the rectification procedure.