Restriction to avail ‘ITC’ under Section 16(2)(aa) of CGST

Restriction to avail ‘ITC’ under Section 16(2)(aa) of CGST Act and relevance of Rule 36(4), if no GSTR-1 is filed by supplier

Input Tax Credit (ITC) forms the backbone of GST. It is imperative to streamline seamless flow of credit and any impending issues under ITC must be resolved at the earliest for making GST a Good and Simple Tax. Entire GST law is based upon seamless ITC but in practice it is totally diverse scenario. Any action of denying ITC would lead to cascading effect and kills the soul of GST. Though, availing of ITC forms one of the most critical activity for every business to settle its tax liability, however, claiming ITC is a mammoth task.

Section 16 of The Central Goods and Services Tax, Act, 2017 (“CGST Act, 2017”) provides that subject to such conditions and restrictions as may be prescribed and, in the manner, specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Conditions for availing ITC

Section 16(2) of CGST Act, 2017 provides that no registered person shall be entitled to input tax credit in respect of any supply of goods or services or both to him unless,–

• he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other taxpaying documents as may be prescribed;
• he has received the goods or services or both;
• the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of ITC admissible in respect of the said supply.
• he has furnished the return.

It is noted that a new clause (aa) to sub-section (2) of section 16 of CGST Act, 2017 has been inserted through Finance Act, 2021. With the amendment by Finance Act, 2021 a further new condition has been inserted is Section 16(2) of the CGST Act, 2017. Section 109 of the Finance Act, 2021 provides that-

After clause (a), in sub-section (2) of Section 16, the following clause shall be inserted:

(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;”.

The CBIC vide Notification No. 39/2021–Central Tax dated December 21, 2021 notified the below mentioned amendments made vide Section 109 of the Finance Act, 2021 w.e.f. January 01, 2022:

It is pertinent to mention that the aforesaid is one more condition regarding entitlement of ITC. It provides an additional condition to claim ITC based on GSTR-2A and newly introduced GSTR-2B, i.e., ITC on invoice or debit note can be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies (FORM GSTR-1) as specified in Section 37 of the CGST Act, 2017 and such details have been communicated to the recipient of such invoice or debit note.

Hence, w.e.f. January 01,2022, following 5 (five) conditions need to be satisfied under Section 16(2) of the CGST Act, 2017 for availing GST ITC on inward supplies of goods or services or both:

• The recipient is in possession of tax invoice or debit note issued by supplier;
• The details of above-mentioned invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient in the manner specified under section 37 of the CGST Act, 2017;
• The recipient has received goods or services or both;
• The tax charge in respect of such supply has been actually paid to the Government; and
• The recipient has furnished the return under section 39 of the CGST Act, 2017.

It is also pertinent to note that pursuant to the Rule 59(3) of CGST Rules, 2017, the details of outward supplies furnished by the supplier shall be made available electronically to the concerned registered person (recipient) in PART A of FORM GSTR-2A, in FORM GSTR-4A and in FORM GSTR-6A through the common portal after the due date of filing of FORM GSTR-1.

No relevance of restriction mentioned in Rule 36(4) of the CGST Act, 2017

W.e.f. 01^st January, 2022 there is no relevance of restriction on availment of ITC under Rule 36(4).

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.