Reverse Charge Liability under GST Not Paid In 2018-19

Can the registered person avail Input Tax Credit for reverse charge liability pertaining to 2018-19 which was paid in the year other than 2018-19?

To understand this query, we take one example as follow:

A person availed advocate services in the year 2018-19 and paid advocate fee Rs.2 lakh in the month of March of the year 2018-19. Such legal expenses had been accounted for in the books of account and taken in profit and loss account in the year 2018-19. But RCM liability of Rs.36000.00 was neither accrued in the books of the year 2018-19 nor paid in the year 2018-19. The person shows this RCM liability in the 3B return of July 2022 filed in August 2022 and paid such liability with interest. The query raised by him whether he can avail input tax credit Rs.36000.00 in 3B return of July 2022 for the RCM liability pertain to the year 2018-19.

There are no disputes, in regard to the above stated example, as under: –

1. Time of Supply for that transaction was in the month of March 2019;

2. Tax Liability was to be discharged in the month of April 2019 through return GSTR-3B of March 2019;

3. That Liability was paid in the month of August 2022 through GSTR-3B return of July 2022 with interest;

4. Self-Invoice is to be issued as per section 31(3)(f) in the month of March 2019 because service was received from unregistered person and

5. Such RCM liability should be declared in the Annual Return GSTR-9 of 2022-23 according to clarification given in press release dated 03-07-2019.

Liability to pay reverse charge liability and availing of input tax credit should be considered and treated as two different terms under the GST Law. The taxpayer pleas that there is no revenue loss if he had not paid the RCM liability. Because if he pays RCM liability then at the same time he will avail input tax credit. The person further says that there is no gain as well as no loss to the GST Department either in the case of payment of reverse charge liability or in the case of non-payment of reverse charge liability. But actual this is not the case. Collection or recovery of tax shall be done through their respective provisions and for availing input tax credit one should have to consider their respective provisions. Therefore, both i.e. payment of reverse charge liability and availing of input tax credit are different terms under the GST Law. It is not necessary if the person pays reverse charge liability, he is eligible for availing input tax credit. He may not be eligible if provisions of the GST do not allow him to avail such credit.

Before answer to the query whether input tax credit can be availed in the GSTR-3B return of July 2022 or not, we analysis provisions of input tax credit relating to the RCM Liability as under:

1. Section 2(62) of the CGST Act treats reverse charge liability under the provisions of sub-sections (3) and (4) of section 9 as “Input Tax”

2. Rule 36(1)(b) says “The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely, —

(a) ………………….

(b) an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to the payment of tax;

3. Section 31(3)(f) says “a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9 shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both.”

4. Self-Invoice should be issued on the day of receipt of services. It means the self-invoice must be issued in the above example in the month of March 2019.

5. Other provisions as stated under section 16 shall also be applied for availing input tax credit under the case of reverse charge liability.

Answer to the query is given by considering two different cases: –

1. Self-Invoice was issued in the month of March 2019 according to section 31(3)(f) but the same was not considered and incorporated GSTR-3B return March 2019 to be filed in April 2019.

2. Other Case is that self-invoice to be issued in the month of March 2019 was issued in the month of July 2022.

First Case self-invoice issued but not considered in the GSTR-3B Return of March 2019 filed in April 2019 and the same was considered in August 2022.

According to section 16(4) input tax credit can be availed pertaining to 2018-19 maximum by the due date of furnishing of the return under section 39 for the month of September 2019. That due date was 20-10-2019. Thus, in the first case input tax credit for the tax invoice of March 2019 cannot be availed in the month of August 2022.

In second case self-invoice was issued in July 2022 and tax was also paid in August 2022 with interest. In this second case there are no disputes that

1. The invoice was not issued within time as stipulated under section 31(3)(f). This section says the invoice should be issued on the date of receipt of goods or services or both. Therefore, the invoice should have been issued in the month of March 2019 for the above stated example;

2. Rule 36(1)(b) allows to avail input tax when the invoice issued in accordance with provisions of section 31(3)(f) and payment of tax had been made;

3. Thus, two conditions must be fulfilled to avail input tax credit towards tax paid for discharging the reverse charge liability. One condition is invoice be issued in accordance with provisions of section 31(3)(f) and other condition is tax had been paid. But the condition for issuance of invoice was not done in accordance with the provisions of section 31(3)(f) because the invoice was issued in July 2022 instead to be issued in the month of March 2019. Therefore, when conditions are not being fulfilled how the input tax credit can be availed.

4. Press Release dated 03-07-2019 just clarifying to declare RCM liability in the Annual Return of that year in which year RCM liability was paid. Press Release is not clarifying on the issues about input tax credit which was not availed in the relevant year and self-invoice was not issued timely.

Conclusion – 

Thus, belated RCM liability shall be paid with interest either through GST Return 3B or through DRC-03 but input tax credit shall only be allowed on the basis of related provisions under the GST Law. Input Tax Credit cannot be availed on the basis of merely payment of RCM liability. 

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

(Rep[ublished with amendments)