Vide Budget FY 2020-2021, the government of India has proposed to amend certain provisions of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) and corresponding provisions of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’) and Union Territory Goods and Services Tax Act, 2017 (‘UTGST Act’).
The Budget Speech mentions that the proposals to amend the provisions of CGST Act or IGST Act are to facilitate trade or consumer and improve compliance.
One of the amendments in the CGST Act is relating to taking of input tax credit (‘ITC’) in Section 16(4) of the CGST Act which reads as under:
“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.”
The Budget has proposed to omit the words ‘invoice relating to such’ from the said section.
The above proposal would come into force on the date as may be appointed by the government by notification in the official gazette.
In this background, it is necessary to understand the need for the omission of words ‘invoice relating to such’ from Section 16(4) of the CGST Act?
Need for omitting the words ‘invoice relating to such’ from Section 16(4) of the CGST Act:
Prior to the proposal for amendment in Section 16(4) of the CGST Act, the possible interpretation was that ITC shall not be available 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 furnishing of annual return, whichever is earlier, as relevant to the invoice.
In other words, the relevant event is the time on which GST invoice is raised. In case of debit note also, the relevant event is the time when the GST invoice pertaining to the debit note is raised, and not the time when debit note is raised.
Further, with respect to the amendment, the Memorandum to the Budget states as under:
“Subsection (4) of the section 16 of the CGST Act is being amended to delink the date of issuance of debit note from the date of issuance of the underlying invoice for purposes of availing input tax credit”.
On a co-joint reading of the above, it can be inferred that the said proposal has intended to remove the possibility of first interpretation by omitting the words ‘invoice relating to such’ from Section 16(4) of the CGST Act with the purpose to delink the date of issuance of debit note from the date of issuance of underlying invoice.
Even after the aforesaid amendment, the Department can still take an interpretation that the availability of ITC can be linked with the financial year in which supply has been made as per time of supply provision.
Therefore, on the concluding note, the time-limit for taking input tax credit of debit note by the traders would be uncertain. It is necessary for the government to issue appropriate clarification to settle the uncertainty before bringing into force the above proposed amendment.
Dear Tax Expert,
Request you to clarify the GST is applicable or not for the below example.
1.We have purchase goods
Cost 1000
GST 120 (will claim input)
Total 1120
MRP 2000
Discount 800
Net amt 1200
GST 128
Taxable 1072
Total Tax payable – 128
Less: Input Credit 120
Balance will pay 8
Later company gives a credit note of Rs.600/- against discount of 800/-
are we liable to pay tax (or not) on 600/- (GST Amt 64.28)
Rs.600/- is additional income