[Ref: Circular No. 160/16/2021-GST, dated 20th September, 2021]

In exercise of its powers conferred by Section 168(1) of the Central Goods and Services Tax Act, 2017 (CGST Act), CBIC has clarified, vide Circular No. 160/16/2021-GST, dated 20th September, 2021 in respect of the amendment made in Section 16(4) through Finance Act, 2020 w.e.f. 01.01.2021.

With effect from 01.01.2021, Section 16(4) of the CGST Act was amended vide the Finance Act, 2020, so as 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.

Before the amendment made, Section 16(4) of the CGST Act was read 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.”

However, after the amendment made in Section 16(4) through Finance Act, 2020, the words “invoice relating to such” were omitted w.e.f. 01.01.2021

In respect of the aforesaid amendment, various representations have been received by the Department from taxpayers and other stakeholders seeking clarification in respect of certain issues pertaining to aforesaid amendment. Doubts have been raised seeking the following clarification:

1. Which of the following dates are relevant to determine the ‘financial year’ for the purpose of Section 16(4):

(a) date of issuance of debit note; or

(b) date of issuance of underlying invoice.

2. Whether any availment of input tax credit, on or after 01.01.2021, in respect of debit notes issued either prior to or after 01.01.2021, will be governed by the provisions of the amended section 16(4), or the amended provision will be applicable only in respect of the debit notes issued after 01.01.2021?

The intent of law as specified in the Memorandum explaining the Finance Bill, 2020 states that “Clause 118 of the Bill seeks to amend sub-section (4) of section 16 of the Central Goods and Services Tax Act so as 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.

Accordingly, it is clarified that:

1. w.e.f. 01.01.2021, in case of debit notes, the date of issuance of debit note (not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4) of the CGST Act.

2. The availment of ITC on debit notes in respect of amended provision shall be applicable from 01.01.2021. Accordingly, for availment of ITC on or after 01.01.2021, in respect of debit notes issued either prior to or after 01.01.2021, the eligibility for availment of ITC will be governed by the amended provision of section 16(4), whereas any ITC availed prior to 01.01.2021, in respect of debit notes, shall be governed under the provisions of section 16(4), as it existed before the said amendment on01.01.2021

Illustration 1. A debit note dated 07.07.2021 is issued in respect of the original invoice dated 16.03.2021. As the invoice pertains to F.Y. 2020-21, the relevant financial year for availment of ITC in respect of the said invoice in terms of section16(4) of the CGST shall be 2020-21. However, as the debit note has been issued in FY 2021-22, the relevant financial year for availment of ITC in respect of the said debit note shall be 2021-22 in terms of amended provision of section 16(4) of the CGST Act.

Illustration 2. A debit note has been issued on 10.11.2020 in respect an invoice dated 15.07.2019. As per amended provision of section 16(4), the relevant financial year for availment of input tax credit on the said debit note, on or after 01.01.2021, will be FY 2020-21 and accordingly, the registered person can avail ITC on the same till due date of furnishing of FORM GSTR-3B for the month of September, 2021 or furnishing of the annual return for FY 2020-21, whichever is earlier.

Remark: The summarised position of the aforesaid clarification is as under –

a) After the amendment i.e. w.e.f. 01.01.2021, in case of issuance of debit notes, the date of issuance of debit note (not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4) of the CGST Act.

b) In case of availment of ITC on or after 01.01.2021, the eligibility for availment of ITC will be governed by the amended provision of section 16(4) of the CGST Act. It does not matter whether debit notes were issued either prior to or after 01.01.2021.

c)  In case of availment of ITC prior to 01.01.2021, the eligibility for availment of ITC will be governed by the old provision of section 16(4) of the CGST Act i.e. before the amendment dated 01.01.2021. 

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

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