Summary: The recent amendment to Section 16 of the CGST Act introduces provisions for claiming Input Tax Credit (ITC) for taxpayers who faced demand due to non-compliance with Section 16(4). Sections 16(5) and 16(6), inserted with retrospective effect from July 1, 2017, provide relief for taxpayers who missed ITC claims between FY 2017-18 and FY 2020-21. Section 16(5) allows taxpayers to claim ITC for these years in returns filed by November 30, 2021. Section 16(6) addresses situations where a taxpayer’s registration was cancelled but later reinstated, enabling them to claim ITC for the period after the cancellation and up to the revocation of registration. Furthermore, the Finance Act 2024 restricts refunds of ITC already reversed or paid before these amendments. A rectification procedure has been introduced under Notification No. 22/2024, allowing taxpayers to seek relief if demand was raised for improper ITC claims under Section 16(4). Taxpayers can apply for rectification with the relevant authorities if no appeal has been filed, within six months of the notification date. Detailed procedural steps are outlined for cases pending with different authorities, ensuring compliance with the amended provisions.
Introduction
The Goods and Services Tax (GST) has been a game-changer for India’s taxation system since its introduction in 2017. Over the years, the government has made several amendments to the GST framework in order to enhance compliance, transparency and overall efficiency of the tax system. This article explores the recent amendment to Section 16 of the Central Goods and Services Tax (CGST) Act, specifically the introduction of Sections 16(5) ,16(6) and procedure of rectification of order to get relief against demand raised due to section 16(4).
- Insertion of Section 16(5) and 16(6) in Central Goods and Services Tax (CGST) Act.
Section 16 of the CGST Act, deals with the eligibility and conditions for claiming Input Tax Credit (ITC). Through the Finance (No. 2) Act, 2024 dated 16.08.2024, after sub-section (4) of section 16 in the CGST Act, 2017, the sub-sections (5) and sub-sections (6) shall be inserted with retrospective effect from the 1st day of July, 2017. Sub Section (5) deals with the late filing of the returns for the 4 years from FY 2017-18 to FY 2020-21 by the taxpayers while sub Section (6) deals with those taxpayers whose registration was cancelled under Section 29, but restored later on under section 30.
The legal provisions and analysis on this matter are outlined as follows:
1. Legal Provisions
Section 16(4) as on 31.03.2021: 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.
Newly inserted Section 16(5) and section 16(6) with retrospective effect 01.07.2017
Section 16(5): Notwithstanding anything contained in sub-section (4), in respect of an invoice or debit note for supply of goods or services or both pertaining to the Financial Years 2017-18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take input tax credit in any return under section 39 which is filed up to the thirtieth day of November, 2021.
Section 16(6): Where registration of a registered person is cancelled under section 29 and subsequently the cancellation of registration is revoked by any order, either under section 30 or pursuant to any order made by the Appellate Authority or the Appellate Tribunal or court and where availment of input tax credit in respect of an invoice or debit note was not restricted under sub-section (4) on the date of order of cancellation of registration, the said person shall be entitled to take the input tax credit in respect of such invoice or debit note for supply of goods or services or both, in a return under section 39,–
(i) filed up to thirtieth day of November following the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier; OR
(ii) for the period from the date of cancellation of registration or the effective date of cancellation of registration, as the case maybe, till the date of order of revocation of cancellation of registration, where such return is filed within thirty days from the date of order of revocation of cancellation of registration, whichever is later.”.
2. Analysis
2.1 Section 16(5) – ITC for the Period 2017-18 to 2020-21
i. Effective – Retrospectively (from July 1, 2017)
ii. Period – FY 2017-18, 2018-19, 2019-20 and 2020-21
Registered Person shall be entitled to take ITC in respect of an invoice or debit note for supply of goods or services or both in the return of any period up to 31.03.2021, which had been filed up 30/11/2021.
Earlier the taxpayer was not eligible to claim ITC after the due date for furnishing the return under section 39 for the month of September following the end of the financial year (i.e., in case of monthly return, 20th October, following the end of the respective FY) or furnishing of the relevant annual return, whichever is earlier.
However, as per section 16(5), for the FY 2017-18 to FY 2020-21, taxpayers are now eligible to claim ITC that was availed in any return filed up to 30.11.2021, even if it was earlier disallowed due to the time limit specified under section 16(4). This provision provide a relief, enabling taxpayers to avail the ITC that was not eligible due to the earlier restrictions as per section 16(4).
2.2 Section 16(6) – Revocation of Cancellation of Registration
i. Effective – Retrospectively (from July 1, 2017)
ii. Before Amendment – Earlier the registered person cannot claim ITC after the revocation of cancellation of registration, if time limit under section 16(4) has been lapsed during the period when GST registration was cancelled.
After Amendment – Now registered person can claim ITC for the period from the date of cancellation of registration till the date of order of revocation of cancellation of registration by filing a return within thirty days from the date of order of revocation of cancellation of registration irrespective of time limit specified under section 16(4).
1. Certain Conditions are required to comply to get benefit under section 16(6) as under:
-
- Registration cancelled under section 29, it means cancellation of registration for any reason and not only for non filing of return.
- Revocation has to be done under section 30 after cancellation of registration or in pursuant to direction given by appellate authority in his appeal order.
- ITC, to be claimed, should not be time barred/restricted under section 16(4) as on the date of cancellation of registration.
- Such ITC to be claimed in GSTR 3B
a) Up to 30th November of next FY or filling of annual return whichever is earlier
OR
b) For the period from date of cancellation /effective date of cancellation of registration till the date of revocation of cancellation of registration, with filing of such GSTR 3B within 30 days of the revocation of the order,
Whichever is later from (a) and (b)
2.3 Restriction on refund on such ITC if already paid:
Further, Section 150 of the Finance (No.2) Act, 2024 states that “No refund shall be made of all the tax paid or the input tax credit reversed, which would not have been so paid, or not reversed, had section 118 been in force at all material times.”
As per above section 150 of Finance Act restriction was made for refund of the such ITC, if it was already paid. So accordingly taxpayer is not eligible to claim the refund of any ITC previously reversed or tax paid in compliance of section 16(4) before the insertion of sub section (5) and sub section (6).
The same thing was confirmed under para 4 of Circular No. No. 237/31/2024-GST dated 15th October, 2024. However, new proviso after para 4 in such circular was inserted through Corrigendum dated 25th October, 2024 that “it is clarified that said restriction on refund under section 150 of the Finance (No. 2) Act, 2024 will not apply to the refund of an amount paid as pre-deposit by the taxpayer as per section 107(6) or section 112 (8) of the CGST Act, at the time of filing of an appeal, where such appeals are decided in favor of the said taxpayer.”
According to above proviso now taxpayer is eligible for refund of amount deposited before or at the time of filing of appeal if appeal order is decided in the favour of taxpayer.
2.4 Procedure of Rectification
Besides above, vide Notification No. 22/2024 – Central Tax dated 08.10.2024, a special procedure for the rectification of orders has been notified under Section 148 of the CGST Act. This procedure is to be followed by a class of taxable persons against whom orders have been issued under Section 73, Section 74, Appeal order under Section 107, or Revisional order under Section 108 of the CGST Act, confirming a demand for the wrong availment of Input Tax Credit (ITC) due to the contravention of the provisions of sub-section (4) of Section 16 , but where such input tax credit is now available as per the provisions of sub-section (5) or sub-section (6) of section 16 of the said Act, and where appeal against the said order has not been filed.
Additionally, Circular No. 237/31/2024-GST dated 15.10.2024 has also been issued to clarify the implementation of the provisions of sub-sections (5) and (6) of Section 16 of the CGST Act, 2017. The circular provides detailed guidance for the taxpayer for the procedural aspects regarding rectification of order as covered under notification no. 22/24, where appeal has not been filed by taxpayer. The circular also provides instructions for taking cognizance of the Section 16(5) and 16(6) of CGST Act, inserted retrospectively with effect from 01.07.2017 by department officials regarding the cases for which proceeding are still pending with the proper officer/appellate authority.
Details of Procedure are as under:
| SN | Particulars | Authority/officer | Action |
| 1. | Any investigation/proceedings has been initiated under section 73 or section 74 regarding contravention of provisions of section 16(4)
BUT No demand Notice(SCN)/statement has been issued under section 73 or section 74 |
By Proper Officer | Officer shall take cognizance of the Section 16(5) and 16(6) of CGST Act, inserted retrospectively w.e.f 01.07.2017 and take further appropriate action. |
| 2. | Demand notice(SCN)/ statement has been issued under section 73 or section 74
BUT No order has been issued under section 73 or section 74 |
By Adjudicating Authority | Officer shall take cognizance of the Section 16(5) and 16(6) of CGST Act, inserted retrospectively with effect from 01.07.2017, and pass appropriate order (under section 73,107,108) |
| 3. | Order under section 73 or section 74 has been issued
AND Appeal has been filed under section 107 BUT No order has been issued under section 107 |
By Appellate Authority | |
| 4 | Order under section 73 or section 74 has been issued
AND Revisional Authority has initiated proceedings under section 108 BUT No order has been issued u/s 108 |
By Revisional Authority | |
| Note that in above all four scenarios no action is required by taxpayer, however as per author’s view it is recommended that the taxpayer have to file an application before the above mentioned authority/officer regarding his case, pending with such officer, required cognizance of the Section 16(5) and 16(6) of CGST Act, inserted retrospectively with effect from 01.07.2017 by the authority/officer, in light of above mentioned circular. | |||
| 5 | a) Order has been issued under section 73 or section 74
BUT No appeal against the said order has been filed with the Appellate Authority OR b) Order has been issued under section 107 or section 108 by the Appellate Authority /Revisional Authority BUT No appeal against the said order has been filed with the Appellate Tribunal |
Appellate Authority/ Revisional Authority | Refer Note No. 1 |
Note 1. Detailed procedure for serial no. 05 of the above table, in which Order/First Appeal order has been issued but appeal has not been filed with the Appellate Authority/ Appellate Tribunal , is as under:
ACTION FOR TAXPAYER
1. The taxpayer shall file an APPLICATION FOR RECTIFICATION OF AN ORDER issued under section 73/74/107/108 of the CGST Act electronically on the common portal.
2. The application must be filed WITHIN A PERIOD OF SIX MONTHS FROM THE DATE OF ISSUANCE OF NOTIFICATION (NOTIFICATION No. 22/2024– CENTRAL TAX Dt. 08.10.2024).
3. Therefore, the last date to file the application for rectification is 04.2025.
4. Also the taxpayer shall upload the information in the proforma in Annexure A (Given in Notification No. 22/2024– CENTRAL TAX Dt. 08.10.2024) along with the said application.
5. The rectification is required to be made only in respect of demand of ITC wrongly availed in contravention of Section 16(4) which is now eligible as per section 16 (5) and 16 (6).
6. Procedure given above is not applicable where the case is not related to 16(4) as given just above in point (e). A taxpayer requires to file an application of rectification of an order for the reasons other than given above in point (e), an application required to file as per the provisions of section 161 of the CGST Act, within the time limit specified therein i.e. within 6 months from the date of issue of such order with certain exception given in second proviso to section 161.
7. Steps to file application for rectification electronically by login to gst.gov.in
Case I – Application for rectification of order issued under section 73 or section 74
- Click Dashboard > Services > User Services > My Applications.
- Select “Application for rectification of order” in the Application Type field. Then, click the NEW APPLICATION
- Under new application in the section ground mention the fact of the case that is covered under notification no. 22/24 and attach proforma in Annexure A.
Case II – Application for rectification of appeal order issued under section 107 or revisional order issued under Section 108
- Click Dashboard > Services > User Services > View Additional Notices/Orders
- Additional Notices and Orders page is displayed. Click the View hyperlink, to go to the Case Details screen of the issued Notice/Order.
- Select the case, required to be rectified, by clicking on the case no.
- Case Details of the selected case is displayed. Click, for view, on the ORDERS and click the “Initiate Rectification” link.
ACTION FOR OFFICER
1. Who will rectify the order – The authority/officer, who had passed the order/Appeal/revisional order, will rectify the order on receipt of the said rectification application.
2. Time Limit to take decision on application and issue the rectified order -> Within A Period Of Three Months From The Date Of The Said Application.
3. Rectified Order will be issued along with summary ->
A summary of the rectified order shall be upload electronically in-
- FORM GST DRC-08 for the rectification of an order issued against the order in original issued under section 73 or section 74.
- FORM GSTAPL-04 for the rectification of an appeal or revisional order issued under section107 or section 108 by the appellate or revisional authority.
4. The rectification is required only in respect of demand of such ITC which has been availed in contravention of Section 16(4) which is now eligible as per section 16 (5) or 16 (6).
5. Rejection of Rectification Application under Notification No. 22/2024 – Central Tax – Where the order do not involve any issue of wrong availment of ITC on account of contravention of provisions of Section 16(4) and where no such ITC is now available as per Section 16(5) or Section 16(6) such an application would be summarily Rejected By The Proper Officer with a remark that, “The rectification application is rejected as it is found that the same is not covered under the notification No. 22/2024 – Central tax dated 08.10.2024, as no such issue is involved in the said order pertaining to wrong availment of input tax credit on account of contravention of provisions of sub-section (4) of section 16 of the CGST Act, and where such input tax credit is now available as per the provisions of sub-section (5) or sub-section (6) of section 16 of the CGST Act”. So in such type of cases, no order will be passed by the authority/officer, while in fact the application file by the taxpayer will be rejected summarily.
6. Where such rectification adversely affects the said person, the principles of natural justice shall be followed by the authority carrying out such rectification and provide opportunity of being heard.
2.5 Annexure A– Annexure A is given in the Notification no. 22/24, required to be upload electronically along with application of rectification duly filed and signed. proforma of the Annexure A :->
Annexure A
1. Basic Details:
i. GSTIN:
ii. Legal Name:
iii. Trade Name, if any:
iv. Order in respect of which rectification application has been filed:
-
- Order Reference Number:
- Order Date:
2. Details of demand confirmed in the said order:
(Amount in Rs.)
| SRN | Financial Year |
IGST |
CGST |
SGST |
CESS |
Total Tax including Cess |
Interest |
Penalty |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
| 2017-18 | ||||||||
| 2018-19 | ||||||||
| 2019-20 | ||||||||
| 2020-21 | ||||||||
| 2021-22 | ||||||||
| 2022-23 | ||||||||
| Total |
3. Out of the amount mentioned in the Table in serial number 2 above:
(a) the details of the demand confirmed in the said order, of the input tax credit wrongly availed on account of contravention of sub-section (4) of section 16, which is now eligible as per sub-section (5) of section 16 of the Central Goods and Services Tax Act, 2017 (12 of 2017) (the said Act):
(Amount in Rs.)
| Sr.No. | Financial Year | IGST | CGS T | SGST | CESS | Total Tax including Cess | Interest | Penalty |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
| 2017-18 | ||||||||
| 2018-19 | ||||||||
| 2019-20 | ||||||||
| 2020-21 | ||||||||
| Total |
and/or
(b) the details of the demand confirmed in the said order of the input tax credit wrongly availed on account of contravention of sub-section (4) of section 16, other than that mentioned in (a) above, which is now eligible as per sub-section (6) of section 16 of the said Act:
(Amount in Rs.)
| Sr.No. | Financial Year | IGST | CGS T | SGST | CESS | Total Tax including Cess | Interest | Penalty |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
| 2017-18 | ||||||||
| 2018-19 | ||||||||
| 2019-20 | ||||||||
| 2020-21 | ||||||||
| 2021-22 | ||||||||
| 2022-23 | ||||||||
| Total |
4. Declaration:
- I undertake that, no appeal under section 107 or section 112 of the said Act is pending against the order against which this rectification application is filed.
- I declare that all information provided by me is accurate and truthful. I understand that any incorrect declaration or suppression of facts will render this application void and may lead to recovery proceedings for the outstanding dues along with applicable interest and penalties.
5. Verification:
I________________ (name of the authorised signatory), hereby declare that the information provided above is true and correct to the best of my knowledge and belief. I understand that any incorrect declaration or suppression of facts will render my application void.
Signature of authorised signatory
Name/Designation
Email address
Mobile No.
*****
Disclaimer
The information provided in this write-up is for general informational purposes only and is based on the prevailing GST laws and regulations as of the date of publication. Every effort has been made to ensure the accuracy and reliability of the content; however, readers are advised to verify the information with the relevant provisions of the GST law or seek professional advice tailored to their specific circumstances.
The author disclaim any liability for errors, omissions, or actions taken based on this material.
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