In pursuant to 53rd GST Council meeting recommendations, the CBIC has issued Circular No. 211/5/2024-GST, dated the 26th June, 2024 to clarity on the applicability of time limit specified under section 16(4) of CGST, 2017 for the purpose of availment of ITC by the recipient on the tax paid by them under RCM in respect of supplies received from unregistered persons.
This write up discusses recent clarification issued by the CBIC regarding the time limit for ITC on supplies received under RCM from unregistered persons.
This clarification by the CBIC brings much-needed clarity for GST registered persons dealing with RCM supplies from unregistered persons.
What was the issue?
There is a disagreement between GST field officers and the industry regarding the time limit for claiming input tax credit (ITC) under section 16(4) of the CGST Act.
This disagreement centers around when the time limit for claiming ITC begins and ends under the CGST Act for supplies from unregistered suppliers under RCM.
GST field Officers’ stand: GST field officers in few cases had considered that for supplies received from unregistered suppliers where tax is paid by the recipient under the RCM, the relevant year for the invoice under section 16(4) is the year in which the supplies were received. Therefore, the ITC can only be claimed until September/November of the following financial year.
Tax payers Arguments: However, industry representatives argue that since the recipient must issue the invoice under section 31(3)(f) of the CGST Act for such supplies, the relevant year for the invoice under section 16(4) should be the financial year in which the invoice is issued. They propose that ITC should be claimable on such invoices until September/November of the financial year following the year in which the invoice was issued.
For Example : Services provided by the foreign related person for the entity in India and the recipient issues the invoice and pays the tax under RCM and claims ITC on such tax paid.
CBIC Clarification:
To ensure uniform application of the law, the CBIC has clarified that the relevant financial year for ITC time limit in such cases is the year in which the recipient issues the invoice under RCM (section 31(3)(f) of the CGST Act). This is because ITC can only be availed based on an invoice or debit note, which the recipient generates in RCM scenarios.
Key Points:
- ITC can only be claimed on the basis of a valid tax invoice or debit note (section 16(2)(a) of the CGST Act).
- For RCM supplies from unregistered persons, the recipient issues the invoice under section 31(3)(f) of the CGST Act.
- Section 16(4) of the CGST Act links the ITC time limit to the financial year mentioned on the invoice or debit note.
Implications:
- Recipients can claim ITC on RCM supplies even if the invoice is issued after the service is received, subject to tax payment and adherence to other conditions under sections 16 and 17 of the CGST Act.
- Delayed invoice issuance leads to interest payment on late tax payment.
- Delayed invoice issuance may also attract penalties under section 122 of the CGST Act.
Conclusion: In conclusion, CBIC’s Circular No. 211/5/2024-GST provides clarity on the ITC time limit for RCM supplies from unregistered persons, ensuring consistency and compliance across GST registered entities. This guidance not only resolves industry uncertainty but also underscores the importance of timely compliance with GST regulations to avoid penalties and optimize tax credit benefits.
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