How to avail benefit of newly inserted section 16(5) of CGST Act, 2017?

On the recommendation of the GST Council, section 16(5) has been inserted with retrospective effect from 01/07/2017, whereby the time limit for claiming ITC vide GSTR 3B for the periods FY 2017-2018, 2018-2019, 2019-2020 and 2020-2021 have been extended up to 30/11/2021. In order to implement the spirit of the provisions of sections 16(5) and 16(6), a special procedure for rectification has been notified vide Notification No. 22/2024- CT dated 08/10/2024. Furthermore, Circular No. 237/31/2024-GST, dated 15/10/2024, clarifying the issues regarding the implementation of provisions of sections 16(5) and 16(6) of CGST Act, 2017 has also been issued.

The author has attempted to address different issues about the above in the form of Questions and views of the authors on such questions.

1. Is there any prescribed mechanism for the taxpayers, in whose case demands have been proposed/confirmed/upheld on account of contravention of the provisions of section 16(4)?

a) Relief has been extended to individuals whose claims for Input Tax Credit (ITC) in their GSTR-3B returns are either subject to rejection or have already been rejected due to being filed after the deadline specified under Section 16(4).

b) Relief is applicable only for the ITC pertaining to FY 2017-2018, 2018-2019, 2019-2020, and 2020-2021, wherein the claims have been made on or before 30/11/2021.

2. What should one do, where the intimation in the form DRC-01A proposing disallowance of belated claim of ITC is served?

As per Circular No. 237/31/2024-GST, in situations where proceedings regarding wrongful ITC availment for alleged violations of Section 16(4) are ongoing, but no demand notice under Section 73 or 74 has been issued, and taxpayers are now eligible to claim such ITC under Sections 16(5) and 16(6), proper officers must consider the retrospective amendments to Section 16 effective from July 1, 2017.

It may however be suggested that the noticee, should reply to the DRC-01A referring to the newly inserted sub-sections of section 16.

3. What should one do, where show cause under section 73 or 74 notice has been issued and the case is pending before the Adjudicating Authority?

As per Circular No. 237/31/2024-GST,  in such cases, the Adjudicating Authority shall take cognizance of newly inserted sub-sections of section 16 and pass the appropriate order.

It may however be suggested that the noticee, should reply to the SCN referring to the newly inserted sub-sections of section 16.

4. What actions should be taken if an order under Section 73 or 74 has been issued, and an appeal has been filed under Section 107, but the Appellate Authority has not yet passed an order?

As per Circular No. 237/31/2024-GST,  in such cases, the Appellate Authority shall take cognizance of newly inserted sub-sections of section 16, and pass appropriate order under section 107.

It may, however, be suggested that the noticee consider this as an additional ground and submit a written representation before the Appellate Authority.

5. What actions should be taken if an order under Section 73 or 74 has been issued, and revision proceedings under Section 108 have been initiated by the revisional authority, but no order has yet been passed under the said section?

As per Circular No. 237/31/2024-GST,  in such cases, the Revisional Authority shall take cognizance of newly inserted sub-sections of section 16, and pass appropriate order under section 108.

It may, however, be suggested that if a notice as per rule 109B (1) has been served,  the noticee should reply referring to the newly inserted sub-sections of section 16.

6. What steps should be taken if an order under Section 73 or 74 has been issued, but no appeal has been filed against the said order?

As per Circular No. 237/31/2024-GST, in such cases, the taxpayer should submit an application for rectification in accordance with the special procedure prescribed under Notification No. 22/2024- CT dated 08/10/2024.

7. What should one do, where an order under section 107 or 108 has been issued but no appeal against the said order has been filed?

As per Circular No. 237/31/2024-GST, in such cases, the taxpayer should submit an application for rectification in accordance with the special procedure prescribed under Notification No. 22/2024- CT dated 08/10/2024.

8. Is there any requirement to file a rectification application if the case is pending before the Investigating Officer, Adjudicating Officer, Appellate Authority (under Section 107), or Revisional Authority?

No. As per Circular No. 237/31/2024-GST,  in such cases, the concerned authority will suo motto take cognizance of the newly inserted sub-sections of section 16.

9. What steps should be taken if a person has filed a Writ Application or Appeal before the Hon’ble High Court against a proposal, order, or appellate order concerning the claim of ITC in contravention of Section 16(4)?

Although the above circular and notification do not explicitly address this issue, it is generally advisable to withdraw the Writ (conditionally or unconditionally, depending on the circumstances) or Appeal (fully or partially) from the Hon’ble High Court, following the proper procedure, and then submit an application for rectification of the order before the Proper Officer as per Notification No. 22/2024- CT dated 08/10/20244.

It is important to note that neither the notification nor the circular mandates the withdrawal of a Writ or Appeal from the Hon’ble High Court before filing a rectification application.

Special care should be taken in cases where the Writ or Appeal before the Hon’ble Court involves other issues in addition to the matter under consideration.

In this context, a recent decision of Hon’ble Guwahati High Court is most relevant. In the said case of “Maina Devi Choraria Vs Union of India and 6 Ors.” It was held- “As such, in view of the amendments brought in, the petitioner is entitled to get the claim of the input tax credit subject to the conditions prescribed in the newly inserted Section 16(5) and Section 16(6) of the CGST Act, 2017 [inserted by Finance (No.2) Act, 2024]. In view of the amendments brought into the statute by the Finance (No.2) Act, 2024 and which amendments have been given retrospective effect from 01.07.2017, the proceedings initiated against the petitioner by way of show-cause notice No. ZD181223004588F dated 06.12.2023 have been rendered redundant. Since the decision has already been taken that the same notification is required to be issued by the State Government, taking such submissions into account, this Court deems it proper to close the instant writ petition by setting aside the impugned order bearing Reference No.ZD180224009080Z dated 09.02.2024 passed by the respondent no.5. The matter now stands remanded back to the competent jurisdictional officer to pass appropriate order(s) if need be.”

10. Who is eligible to file a rectification Application under the special procedure notified vide Notification No. 22/2024?

A rectification application under Notification No. 22/2024- CT dated 08/10/2024 may be filed by taxpayers in cases where an order under Sections 73, 74, 107, or 108 has been issued for the financial years 2017-2018, 2018-2019, 2019-2020, or 2020-2021, and:

• The demand has been raised or confirmed due to a contravention of Section 16(4).
• The order is not pending before any appellate forums

11. What is the procedure for filing the Rectification Application?

The rectification shall be filed electronically on the common portal. Along with the application, information in the proforma in Annexure A of the above notification.

Procedure:

The taxpayers can apply for rectification electronically, after login to www.gst.gov.in, using their credentials, by navigating as below in various cases:

a. In the case where an application for rectification of an order issued under section 73 or section 74 is to be filed:

i. Click Dashboard > Services > User Services > My Applications.

ii. Select “Application for rectification of order” in the Application Type field. Then, click the NEW APPLICATION button.

b. In the case where an application for rectification of an order issued under section 107 is to be filed:

i. Click Dashboard > Services > User Services > View Additional Notices/Orders.

ii. Additional Notices and Orders page is displayed. Click the View hyperlink to go to the Case Details screen of the issued Notice/Order.

iii. The Case Details page is displayed. The APPLICATIONS tab is selected by default. Select the ORDERS tab and click the “Initiate Rectification” link.

c. In the case where an application for rectification of an order issued under section 108 is to be filed:

i. Click Dashboard > Services > User Services > View Additional Notices/Orders.

ii. Additional Notices and Orders page is displayed. Click the View hyperlink to go to the Case Details screen of the issued Notice/Order.

iii. The Case Details page is displayed. The NOTICES tab is selected by default. To submit a Rectification Request against the Revision Order issued to you by the Revisional Authority, select the ORDERS tab and click the “Initiate Rectification” link.

While filing such application, the taxpayer shall upload along with the application, the information in the proforma in Annexure A of the above-said notification, containing inter-alia the details of the demand confirmed in the said order.

12. Is there any time limit to file/upload the rectification Application?

The rectification Applications in the above cases are to be filed within 6 (six) months from 08/10/2024.

13. Is there any time limit to pass the order of rectification?

The rectification order in these cases will be issued, as far as possible, within a period of three months from the date of the rectification application.

14. Who is responsible for passing the rectification order, and in which form will the order be issued?

The proper officer responsible for rectifying the said order shall be the authority who issued the said order. Accordingly, the Adjudicating Officer, Appellate Authority, or Revisional Authority, as applicable, shall pass the rectification order in the following forms :

a) Form GST DRC-08, in cases of the rectification of an order passed under section 73 or 74.

b) FORM GST APL-04, in cases of the rectification of an order passed under section 107 or 108.

15. Can mistakes or errors other than those related to demanding tax due to contravention of Section 16(4) be rectified under this special procedure?

No, this special procedure is specifically limited to rectifications concerning demands arising from the contravention of Section 16(4). It does not allow for the rectification of any other errors or mistakes.

16. Whether the issue of the fulfilment of other conditions of ITC, which are not taken as the ground in SCN be considered or enquired about while disposing of the rectification petition?

Section 75(7) restricts the confirmation of any demand on grounds other than those specified in the notice.

Furthermore, the adjudicating authority’s scope under the special procedure is limited to deciding on the rectification application and issuing the order. The instant proceeding does not grant the adjudicating authority specific powers to conduct an inquiry on new issues.

The author is of the view that Paragraph 3.5.3 of the Circular neither directs the Proper Officer to conduct such an enquiry nor does the Board have the authority to confer such powers on the Officer.

17. Whether rectification is permissible in the cases, where demand against wrongful availment of ITC has been confirmed on two or more grounds and one of such grounds is contravention of section 16(4)?

This procedure of rectification has a limited scope of rectifying the demands and is applicable only in cases, where demand has been confirmed on the ground of contravention of the provision of section 16(4).

Circular No. 237/31/2024-GST, at para 3.5.3. inter-alia contains that While deciding on such application for rectification filed under the said special procedure, the proper officer shall also consider grounds, if any, for denial of the ITC, other than a contravention of sub-section (4) of section 16 of the CGST Act, invoked in the concerned notice under section 73 or section 74, as applicable, in respect of the said amount of input tax credit.

However, the officer needs to ensure that any demand raised in contravention of Section 16(4) is liable for rectification only if the applicant is now entitled to avail of the said input tax credit under the provisions of Sections 16(5) or 16(6). In cases where a single demand for wrongful availment of ITC is raised on multiple grounds, the adjudicating authority is expected to consider all such grounds before issuing the rectification order.

18. Are Proper Officers bound to follow the principles of natural justice while disposing of a rectification application?

As per the above Notification, the principles of natural justice shall be followed by the authority carrying out such rectification, where such rectification adversely affects the applicant.

19. Can an appeal be filed against the rectified order?

Paragraph 3.5.5. of the above circular contains-  “in cases where any rectification has been made by the proper officer in the order for which the rectification application has been filed, an appeal against such rectified order can be filed under the provisions of section 107 or section 112 of the CGST Act, as the case may be, within the time limit specified therein”.

20.. What process should be followed in the following scenario?

An order has been issued under Section 74, raising demands under Sections 73 or 74 on two grounds: (1) wrongful availment of ITC due to contravention of Section 16(4) and (2) short payment of output GST. The taxpayer believes that both demands should be invalidated.

Though there may be some different opinions, in view of the author, a rectification application should be filed first. Thereafter, the appeal should be filed. However, if there is a time limit constraint, one may file the appeal disputing the entire demand even before the rectification order is received.

In this context, some opinions have been made that in case the rectification application is filed, the counting of days gets stopped till the rectification order is communicated, for the purpose of the limitation of filing the appeal, but contrary views are also there. The author reserves his views. Decisions are to be made very cautiously.

Para 3.5.5 of the circular contains- “Further, it is to be noted that in cases where any rectification has been made by the proper officer in the order for which the rectification application has been filed, an appeal against such rectified order can be filed under the provisions of section 107 or section 112 of the CGST Act, as the case may be, within the time limit specified therein.”

21. Will a refund be granted if the taxpayer has already paid the full or partial amount demanded for contravention of the provisions of Section 16(4)?

As per section 150 of the Finance (No. 2) Act, 2024, no refund of tax already paid or input tax credit already reversed would be available, where such tax has been paid or input tax credit has been reversed on account of contravention of provisions of section 16(4) of the CGST Act, and where such input tax credit is now available as per the provisions sections 16(5) or 16(6) of the CGST Act.

However, the above restriction on refund will not apply to the refund of an amount paid as pre-deposit by the taxpayer as per sections 107(6) or 112(8) of the CGST Act, at the time of filing of an appeal, where such appeals are decided in favour of the said taxpayer.

22. What actions will the Proper Officer take upon receiving a rectification application in the following cases?

• • A Show Cause Notice was issued alleging unlawful availment of ITC on multiple grounds, one of which involved a contravention of Section 16(4). The adjudicating authority found the other grounds to be unsustainable and upheld the demand solely on the basis of the contravention of Section 16(4). No appeal was filed.
  • An adjudicating order was issued raising a demand for unlawful availment of ITC on multiple grounds, one of which pertained to a contravention of Section 16(4). The Appellate Authority determined that the other grounds were unsustainable and upheld the demand solely based on the contravention of Section 16(4). No appeal was filed before the Tribunal.

The Adjudicating Officer/ Appellate Authority will rectify the order and delete the demands for unlawful availment of ITC.

23. What process will be followed in a case where a single demand has been raised for unlawful availment of ITC on two grounds: one for contravention of the provisions of Section 16(4) and the other for non-reversal of ITC under Section 17(2)?

The words used in the above notification “authority shall take a decision on the said application and issue the rectified order”. Further the circular in paragraph  3.5.3. contains “While taking a decision on such application for rectification filed under the said special procedure, the proper officer shall also consider other grounds, if any, for denial of input tax credit, other than contravention of sub-section (4) of section 16 of the CGST Act, invoked in the concerned notice issued under section 73 or section 74, as applicable, in respect of the said amount of input tax credit”.

Thus, it appears that the Proper Officer while disposing of the rectification application shall also consider the other ground(s) and thereafter pass the rectification order. However, the issue needs further clarification.

24. Whether the order rectified under section 161 on some other issues may again be eligible for the special procedure for rectification.

In the view of the author, no such restriction has been given.

25. Whether the appeal u/s. 107 can be filed against the order passed under special procedure for rectification.

Yes, an appeal under section 107 can be filed.

Disclaimer: The above views expressed are the personal views of the author based on his interpretation of the provision of law, the notification and the circular. The possibility of other views on the subject matter cannot also be ruled out. Thus the readers are advised to check all the outcomes and act accordingly.