This article is discussing the limitation period to avail the input tax credit in regard to Debit Note on the perception of amendment happened in section 16(4) of the CGST Act with effect from 01-01-2021 and on the perceptive of the Advance Ruling in the case of M/s. I-Tech Plast India Private Limited held by the Gujarat Advance Ruling Authority.

Discussion Issue is Financial Year in regard to Debit Note for the purpose of section 16(4) after amendment

Discussion before us that after the amendment taken place with effect from 01-01-2021 the financial year of the Debit Note for the purpose of section 16(4) shall be the year in which the Debit Note is issued or the year in which the invoice relating to such Debit Note was issued.

Amended Section 16(4) is “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.”

Amendment taken place by omitting words “invoice relating to such” putting before the word debit note appearing in second last line of the above stated section 16(4).

The Perspective of Advance Ruling

The Advance Ruling ruled that the financial year in regard to Debit Note shall be the same year which is the year of the invoice relating to such Debit Note irrespective of the fact that year of the Debit Note is differ from the year of the Invoice even after the said amendment taken place from 01-01-2021.

The Gujrat Authority in Advance Ruling M/s. I-Tech Plast India Private Limited held that we do not find it to be such a drastic or far-reaching change affected by the Finance Bill, 2020. Just because the words “invoice relating to such” connected to “debit note pertains” was omitted, does not mean that the relation of the debit note with the invoice has been cut off or that omission of the above words means, that the year in which the debit note was issued will be considered as the ‘financial year’ as per amended sub-section (4) of Section 16. It is amply clear that the debit note is not an independent document or an invoice in itself and is connected to an invoice as it is issued in pursuance to change in value of an invoice. The financial year to which a debit note pertains, is invariably the financial year in which the original invoice (related to the said debit note) was issued.

Thus, the Advance Ruling Authority held that there is no change in regard to the Financial Year for Debit Note pre and post amendment for the purpose of the section 16(4). Financial Year for Debit Note shall be the year of the invoice irrespective of the fact the year of Debit Note is differ from the year of the invoice.

My Observations

On perusal of the amended section 16(4) it is observed that the Legislature was interested to remove the anomaly in the section, therefore, such amendment was taken place. To understand the anomaly, I take the following example.

A registered person supplied 110 pieces of trousers on 30-03-2020. A tax invoice was also issued on 30-03-2020. On 02-03-2021 the person came to know that the invoice was issued for 100 pieces of trousers in place of 110 pieces. The person issued a Debit Note on 02-03-2021 for balance 10 pieces of trousers with reference to invoice dated 30-03-2020. The query raised by the recipient of the supplier whether he can avail input tax credit against Debit Note issued on 02-03-2021 for invoice dated 30-03-2020.

According to Section 16(4) the limitation period to avail input tax credit in the case of invoice of dated 30-03-2020 was the due date of furnishing the return for the month of September 2020 i.e. 20-10-2020 presumed due date for furnishing return of September 2020 was 20-10-2020 and annual return had not been furnished till 20-10-2020.

Before amendment, financial year in regard to Debit Note shall be the financial year of the Invoice irrespective of the fact that financial Year of the Debit Note may be differ from financial year of the invoice. Thus, limitation period for availing the input tax credit against Debit Note shall be reckoned while considering the date of invoice pertaining to the Debit Note. Therefore, in the said example input tax credit for the Debit Note as issued on 02-03-2021 pertaining to the invoice dated 30-03-2020 could be availed up to the date of 20-10-2020 according to pre amendment provisions.

This is the anomaly that date for availing the input tax credit had elapsed before issuing the Debit Note in this example.

Considering the said anomaly, the issue was taken up for discussion during the 38th GST Council meeting. The law committee examined the matter and proposed that “credit may be allowed for debit notes irrespective of

the date of issuance of the underlying invoice”.

The reason/intention behind the said amendment was also provided in the Memorandum to the Finance Bill 2020, which stated that the change was with an intention ‘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.”

Thus, on plain reading of the amended provisions under section 16(4), input tax credit against Debit Note issued on 02-03-2021 can be availed up to the due date for furnishing the return for the month of September 2021.

Therefore, my observation is that the Advance Ruling Authority has erred in interpretation the amended provisions under section 16(4).

The AAR stated that the Debit Note is not an independent document. But it should not be correct in the sense that Tax Invoice and Debit Note are different documents under the GST Law. Both documents are governed by separate provisions as contemplated under the GST Law.

It is true that Debit Note is issued to rectify the mistake occurred in the invoice but it is also correct that both are being governed by separate provisions.

Debit Note can be issued any time. It is issued when the mistake is come to the knowledge of the persons. There is no limitation period prescribed under the GST Law that the same (Debit Note) must have been issued within that period.

Section 16(2) of the CGST Act allows input tax credit on the basis of Debit Note independently.

On perusal of the pre and post amendment provisions in section 16(4) there is no ambiguity to understand the financial year relating to the Debit Note. Thus, if there is ample clarity in the law then the same provisions must be adopted

Case Law in regard to interpretation of taxing statues

If the language of the statute is clear and unambiguous, words must be understood in their plain meaning. The wordings of the Act must be construed according to its literal and grammatical meaning, whatever the result may be.

Vidarbha Irrigation Dev. Corpn. v/s ACIT [(2005) 278 ITR 521 (Bom)

It is not permissible to construe any provision of a statute, much less a taxing provision, by reading into it more words than its contains. 

CIT v/s. Vadilal Lallubhai [(1972) 86 ITR 2 (SC)

The language of the statute has to be interpreted bearing in mind that it is a taxing statute which comes up for interpretation. The provision must be construed on its plain terms. Equally, in interpreting the statute, we must have regard to the purpose underlying the provision. An interpretation which effectuates the purpose must be preferred particularly when it is supported by the plain meaning of the words used.

Supreme Court Judgment in the case of M/S Radha Krishan Industries

Conclusions

As per my observation that limitation period for availing input tax credit in regard to Debit Note should be reckoned from the date of Debit Note and there should be no concern with the date of the invoice relating to the Debit Note according to the amended provisions stated under section 16(4) effecting from 01-01-2021.

In spite of the amendment but the contrary ruling shows the fate of litigation under the GST Law. The Government should issue necessary clarifications with respect to the applicability of amended Section 16(4) of the CGST Act, in order to safeguard the objective of said amendment and to avoid unnecessary litigation.

To reach to me for any suggestions, rectifications, amendments and/or further clarifications in regard of this article my email address is [email protected]

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