Summary: Under Section 16(2) of the CGST Act, a registered taxpayer can claim Input Tax Credit (ITC) only if specific conditions are met. These include possession of a tax invoice, receipt of goods or services, and ensuring that the supplier has paid the applicable GST to the government. Additionally, the buyer must pay the supplier the invoice amount within 180 days. If payment is not made within this period, the ITC claimed must be reversed and added to the output tax liability along with interest. ITC can be reclaimed only after the pending amount is paid to the supplier. While this provision ensures timely payments to suppliers, it creates compliance challenges, especially in cases where businesses operate on a credit basis with running accounts rather than one-to-one payments. This often leads to complications during audits, where authorities scrutinize payment records. To avoid issues, businesses must maintain clear documentation of payments to justify ITC claims.
Input Credit reversal under Sec 16(2) of CGST Act read with State GST Act and Rules
Under the GST regime, to claim the input credit , the registered person must have a tax invoice and should have received such goods or services as mentioned in the tax invoice. There are more conditions under the GST Act for the taxpayer to fulfil before claiming ITC. This includes the seller must pay the GST tax to the government and also the buyer must pay the bill amount to the seller within a period of 180 days from the date of bill or supply.
The definition of Sec 16(2) submits as follows
Section 16 : Eligibility and conditions for taking input tax credit
16(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
IN the above section a proviso is mentioned as below
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
From the above , it is clear that any buyer if not paid the amount to the seller within a period of 180 days , it is liable to reverse the input credit taken and the same can be availed only after making the payment to seller. It is in general is good for the seller and condition to the buyer. But in many circumstances the buyer and seller will have a credit facility to continue the business. In many circumstances the dealers will have a running account and payment is always in adhoc level. No one to one payment is happening in many cases.
This major inconsistency in the Sec 16(2) the dealers are facing major issues during the audit and audit authorities are questioning the payment particulars of the sundry credits
Conclusion
It is the high time the dealers must take more precaution and keep the records in clear wy to explain the payment made to the seller so that the audit authorities can consider the ITC availement in accordance with law
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