Time limit for availing ITC – s.16(4) amendment needs to be notified – By S Sivakumar, B.Sc., LL.B., FCA, FCS, ACSI, Advocate – 16-11-2020

Time limit for availing ITC – s.16(4) amendment needs to be notified – By S Sivakumar, B.Sc., LL.B., FCA, FCS, ACSI, Advocate – 16-11-2020

A very important beneficial amendment of far-reaching consequences to Section 16(4) of the CGST Act, 2017 brought about by the Finance Act, 2020 relates the time limit for availment of ITC. Interestingly, it seems that this amendment has failed to create the euphoria that it rightly deserves.

As we know, Sub-section (4) of Section 16 has been amended by the Finance Act, 2020 and the amended and the unamended versions of this sub-section are reproduced below –

Before AmendmentAfter Amendment
SECTION   16.   Eligibility   and   conditions for taking input tax   credit (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 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.SECTION   16.   Eligibility   and   conditions for taking input tax   credit (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 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 debit note pertains or furnishing of the relevant annual return, whichever is earlier.

The words ‘invoice relating to such’ appearing in Section 16(4) have been omitted by the Finance Act, 2020. The dictionary meaning of the verb ‘pertains’, is ‘appropriate’, ”related to’ or ‘applicable to’. A reading of the un-amended sub-section would indicate that, the time limit for availing ITC against a debit note was linked to the date of the underlying invoice against which, such debit note was raised. For example, if a supplier had not charged GST on his invoice dated March 30, 2019 and had raised a debit note dated November 30, 2019 for the GST element, the recipient would not have been able to avail ITC of the GST charged on the debit note, as the time limit of September 30, 2019 to claim ITC for FY 2018-19 would have expired, by the time the debit note was raised. However, under the amended version, the time limit would get applied from the date of the debit note and not the date of the invoice covered or underlying the debit note and consequently, ITC can be availed without any issues. Post this amendment, the time limit for availing of ITC under Section 16(4) would now be computed with reference to the date of the invoice or the debit note and NOT, to the period or the financial year in which the relevant supply was effected.

TIOL readers may kindly note that, under Rule 4(7) of the erstwhile Cenvat Credit Rules, 2004, which read as under, we had a provision which is very similar to the amended version of Section 16(4)…

The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in Rule 9 is received….

…………

Provided that  the manufacturer or the provider of output service shall not take CENVAT credit after one year of the date of issue of any of the documents specified in sub-rule (1) of Rule 9……….

It seems that the Government has realized its mistake in terms of the wordings used in the unamended Section 16(4) vis-à-vis the erstwhile Rule 4(7) of the Cenvat Credit Rules, 2004 and has accordingly amended this very important Section. This amendment would immensely help suppliers who contest levy of GST on their supplies and eventually lose their case, perhaps at the appellate fora. So long as no allegation of fraud or willful misstatement or suppression of facts is confirmed against them by the orders passed by the appellate authorities, (or for that matter, by the adjudicating authorities when the supplier does not contest such orders before the appellate fora), which would otherwise prohibit availment of ITC under Rule 36(4), they can always raise debit notes for the supplies already effected by them based on which, their customers/clients can avail of ITC, in terms of the amended Section 16(4). This amendment would cover cases involving raising of invoices by the suppliers without charging GST (on the premise that the underlying transactions are not chargeable to GST) as also cases where no invoices were raised. The supplier can accordingly raise debit note or invoices, respectively.

One question that would arise is whether, this beneficial amendment would have retrospective effect, in the absence of a clear mention to that effect? In my strong view, the benefit arising out of this amendment would indeed be available with effect from 1-7-2017. This amendment, in my strong view, is curative in nature. The Division Bench of the Apex Court has, in  Commissioner of Income Tax (Central) – I, New Delhi vs. Vatika Township Private Limited 2014-TIOL-78-SC-IT-CB, observed that whenever the legislator intends to confer benefit upon a person, it must be presumed to have retrospective effect. Reliance can also be had on the judgment of the Apex Court in Zile Singh vs. State of Haryana & Ors. (2004) 8 SCC 1, wherein, it was held that substitution of a clause which clarifies about the intent of the legislature takes effect from the date of enactment of original provision. 

Of course, we also have the recent judgment of the Apex Court in M/s L R BROTHERS INDO FLORA LTD Vs COMMISSIONER OF CENTRAL EXCISE reported in 2020-TIOL-145-SC-CUS, wherein at Para 30, the Apex Court has held as under:

“Upon reading the observations at Paragraph 30 and juxtaposed with paragraph 32, it is crystal clear that an essential requirement for application of a legislation retrospectively is to show that the previous legislation had any omission or ambiguity or it was intended to explain an earlier act. In absence of the above ingredients, a legislation cannot be regarded as having retrospective effect”

Since, in my strong view, the amendment carried out to Section 16(4) as referred to above is curatory in nature, to get over the mistake in the previous version of the said Sub-section, the said amendment will need to have retrospective applicability with effect from 1-7-2017.

Be that as it may…another issue that may crop up vis-à-vis this amendment is that, it only covers invoices and debit notes and does not cover the other documents like Bill of Entry, which are also eligible documents for availment of ITC, in terms of Rule 36 of the CGST Rules. There is a clear reference to the other documents under the erstwhile Rule 4(7) of the Cenvat Credit Rules, 2004. It seems that this could have been an inadvertent mistake and can be rectified by a further amendment to Section 16(4), so as to ensure that the benefits arising out of this amendment flows to all registered persons.

We would, however, need to keep in mind that the other conditions prescribed in Section 16 would continue to be applicable, for availment of ITC.

Of course, in terms of Rule 36(4), ITC cannot be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts.

Before parting…

One really wishes that the Legislature uses a simple language to draft tax laws. In the instant case, it would have been far better if the Legislature had referred to the date of the invoice or debit note, which was, in any case, the language used in the erstwhile Rule 4(7) of the Cenvat Credit Rules, 2004.

Interestingly, the notification for implementing this amendment is yet to be issued by the Central Government. Reasons for the same are hard to come.

We hope that the notification is issued without further loss of time. Please, no section 50 redux!

[The views expressed are strictly personal.]

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