Can input tax credit (ITC) for a financial year be taken beyond September of the following year?

The common question asked by every client after the closing of the books of accounts of any financial year is “we have missed to take the credit, is it possible to take the credit now?” This question is generally asked in the month later than September of the end of the financial year. The answer to the above question keeps changing every year, since the GST law is still evolving, and many questions needs to be answered. Though GST law which was introduced with a biggest advantage of giving the taxpayers seamless flow of credit, but the Act which was drafted and passed as law restricts input tax credits in various ways. Section 16 of the CGST Act, 2017 is the classic case of continuous amendments being made to the section to make it more and more difficult for the taxpayers to avail input tax credit.

As per Sub Section 4 of Section 16 of the CGST Act, 2017, it provides:

(4) “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 debit note pertains or furnishing of the relevant annual return, whichever is earlier.”

Can ITC for a financial year be taken beyond September of following year

Below proviso was inserted vide Order no. 02/2018 – CT dated 31.12.2018

“Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.”

The above exception for the financial year 2017-18, which gave relief till 31st March 2019 to avail the input tax credit for that particular year, otherwise for every year the time limit to avail the input tax credit is due date of furnishing return for the month of September i.e. 20th October of the following year or actual date of filing annual return, whichever is earlier.

We may conclude that, Section 16(4) is very clear and restricts the claiming of input tax credit with a time limit, which is fair and reasonable, but the story does not end here, but starts.

Section 16(2) of the CGST Act lays down five conditions (originally four w.e.f 01.01.2022 one additional condition added) for taking input tax credit as follows:

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;

(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;

(b) he has received the goods or services or both.

Explanation. — For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services––

(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;

(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the  Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:

Basically, sub section 2 of section 16 starts with a clause “Notwithstanding anything contained in this section….”, this sub section has an over riding power on the other provisions of this section including sub section (4) that is, time limit to avail the input tax credit. Since sub section 2 has an over riding effect on sub section 4, input tax credit can be taken if the above five conditions are fulfilled, which is

1. Recipient is in possession of the tax invoice or debit note

2. The supplier has furnished the details of tax invoice or debit note in the statement of outward supplies, that is GSTR 1 and is appearing in GSTR 2B of the recipient

3. The recipient has received the goods or services

4. The supplier has paid the tax to the Government

5. The recipient has filed his returns

Having said that, will such an interpretation of law give taxpayer the right to take input tax credit without any limit or time frame. What is the intention of the Government in this matter? If the intention of the Government is laid down clearly, then drafting errors will not make those intentions any way inferior. In a very popular judgement in the case of ALD Automotive (P) Ltd V Commercial Tax Officer (2018), Supreme Court held that “the input tax credit is in the nature of benefit / concession extended to dealer under the statutory scheme. The concession can be received by the beneficiary only as per the scheme of the status. The condition under which input tax credit is to be enumerated in section 19. In event, it is accepted that there is no time period for claiming input tax credit as contained in section 19(11) the provision becomes too flexible and give rise to large number of difficulties including difficulty in verification of claim of input tax credit. The use of word shall in section 19(11) does not admit to any other interpretation except that the submission of input claim cannot be beyond the time prescribed. In the scheme of Tamil Nadu Vat Act, there is no power conferred on any authority under the act to dilute the mandatory requirement under section 19 (11). The taxing statute has to be strictly construed. Nothing is to be read in, nothing is to be implied and language used in taxing statute has to be looked into fairly. In view of the aforesaid, the appeal filed by the assessee deserved to be dismissed”.

Similarly in the recent GST judgement by Kerala Hight Court in the case of Sun Dye Chem V The Assistant Commissioner, the court held that “in the absence of an enabling mechanism, assessee should not be prejudiced from availing credit that they are otherwise legitimately entitled to. The error committed by the petitioner is an inadvertent human error and the petitioner should be in the position to rectify the same, particularly in the absence of an effective enabling mechanism under the statute”.

The Sun Dye Chem case pertained to the times when GSTR 2A was not in existence and hence the assessee found favour from the High court. Whether the same logic applies in today’s times is questionable.

In my opinion in the present scenario, it is practical and logical to adhere to the time limit laid down under section 16(4) and not to take any credit beyond the time limit prescribed. Though this matter will be taken up in the higher courts and supreme courts also, and suppose if an assessee feels if they forego to take the the credit and if in the future date the top court gives judgement in their favour? They will permanently loose the credit with no option to reclaim it. In such situations, it is advised to take the credit after the due date and reverse it under protest and send communication to the jurisdictional officer , mentioning your stand on the matter and making it clear that once the issue is favourable in the future the credit will be reclaimed. In such circumstances, since the input tax credit is not utilized there is no question of interest and penalty.

Let us see how this issue unwinds in the future. Fingers crossed.

Author Bio

Qualification: CA in Practice
Location: HOSUR, Tamil Nadu, India
Member Since: 28 Jul 2020 | Total Posts: 16
Has passed out in the year 1999 & has been partner in the firm since November, 2000. Has completed Certification on Service Tax, Certificate Course on GST. Completed one year as Deputy Convenor & one year as Convenor in Hosur CPE Study Circle of SIRC of ICAI and was president of Krishnagiri View Full Profile

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One Comment

  1. K.Sethuraman says:

    It is inevitable in due course that the Supreme Court will have to ascertain if the relevant statutory provisions are consistent with the applicable recommendations of the GST Council and if so, whether every such recommendation complies with the constitutional norm of HARMONY stipulated in clause (6) of Article 279A to guide the GST Council.

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