Understanding the provisions of GST may be a hard-nut to crack. You need to go through every provision and comply accordingly in order to receive any notice from the department. There are plenty of cases pending and notices issued against wrongful availment of Input Tax Credit (ITC) under GST Act.
No businessman or company wants notice from the department where tax is demanded along with interest and penalty as this can harm the reputation of the company as well as financially.
To clear all your doubts related to availment of ITC, I will discuss and decipher all the important related ITC provisions under GST Act 2017.
First, you need to learn that there are 5 Sections from Section 16 to Section 20, laid down in the GST Act 2017. But, we will discuss the most important – Section 16 due to which many businesses get notices from the department.
Section 16 as per CGST or SGST Act 2017
16. Eligibility and conditions for taking input tax credit.— (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, 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,––
(a) 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;
(b) he has received the goods or services or both.
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or installments, the registered person shall be entitled to take credit upon receipt of the last lot or installment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.
(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income Tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
(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.
[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]
This section 16(4) is amended vide Notification No. 18/2022–Central Tax | Dated: 28.09.2022, which states – “in sub-section (4), for the words and figures “due date of furnishing of the return under section 39 for the month of September”, the words “thirtieth day of November” shall be substituted.”
What Section 16 says in simple terms
Section 16 says that only registered taxpayer is allowed to take input tax credit (ITC) if these conditions are fulfilled:
- You have received the goods or services or both
- Possession of a tax invoice or debit note: Your supplier has raised tax invoice or debit note
- If goods or services are received on installment or on lot, you can take credit on installments or based on lots only.
- If your supplier has filed GSTR-3B returns and paid the tax to the government, you are allowed to take the input tax credit as per Section 16(2)(c) ibid.
- If you don’t pay the tax to your supplier within 180 days from the issuance of invoice by the supplier, you will have to reverse the credit along with interest as applicable under Section 50(3) of the GST Act.
- Due Date to avail ITC: You can take the credit on left-out invoices of the previous financial year in the following year before or in GSTR-3B of September. It means you have to take credit on a few invoices of 2019-20, you can do so between April to September GSTR-3B returns of 2020-21. After that the credit gets lapsed and you are not allowed to avail and utilize the credit on previous year financial year invoices, covers under Section 16(4) ibid
- The due date for 2017-18 was extended till March 2019 and After Notification No. 18/2022–Central Tax | Dated: 28.09.2022, the act is amended according to which the due date to avail credit under Section 16(4), is 30th November after 2022-23.
- You should always go through GSTR-2B or GSTR-2A to match availment of your iTC. The credit details should be appearing in GSTR-2A or GSTR-2B returns, you can take credit, else you will follow up with your supplier to file its GSTR-3B and GSTR-1 returns.
Most common notices issued under Section 16
Most common violations are made by small businesses under Section 16(2)(b), Section 16(2)(c), and Section 16(4), and thus, notices are issued by the GST department where input tax credit is disallowed and also demanded along with interest and penalty.
Some have fraudulent intentions to evade tax, which violates the Section 16(2)(b), for which the person has to pay the reverse wrongful availment of input tax credit, along with interest and equal penalty.
Maintaining proper records for availment of input tax credit under GST Act is very important for every business. Section 16(2)(c) restricts you to avail input tax credit, if your supplier does not pay the tax to the Government means don’t file GSTR-3B returns. Your supplier has to file GSTR-3B returns within the period and it does not matter if you have paid him on time. The GST department can deny the input tax credit claim and notice can be issued to reverse the claimed input tax credit.
One more restriction which is laid down in the Section 16(4), where a taxpayer is allowed to take input tax credit on invoices on or before subsequent 30th November of previous financial year, else your availment of input tax credit will be denied. Earlier, it was allowed on or before GSTR-3B of September month.
Conclusion
Some taxpayers unintentionally violate Section 16(2)(c) and / or Section 16(4) of the Act. Consequently, notices are being served with direction to reversal the ITC claimed under these provisions, along with interest and penalty.
So, you need to go through the provisions carefully before availing ITC under Section 16 of the GST Act 2017. I will definitely post separately the remedy of these notices and how the notices can be avoided and smoothly run the businesses without worrying of GST department notices. For this, you need to follow my blog- finbloom.in for more updates on this.
Read more: Closing Business? Surrender GSTIN & File Returns Correctly
