Special procedure for Rectification of Order considering insertion of Section 16(5) and 16(6)

Special procedure for Rectification of Order considering insertion of Section 16(5) and 16(6)

Summary: The Indian Government, following GST Council recommendations, introduced sub-sections (5) and (6) to Section 16 of the CGST Act, 2017, through the Finance (No. 2) Act, 2024. These provisions, effective from 27-09-2024 but with retrospective application from 01-07-2017, aim to ease difficulties faced by taxpayers during the initial years of GST implementation. This amendment allows input tax credit (ITC) claims, previously denied under Section 16(4), to be rectified under the new provisions. To address this, a special procedure has been established for rectifying orders issued under Sections 73, 74, 107, or 108 of the CGST Act. Taxpayers who were issued such orders but did not file appeals can now apply for rectification, provided their ITC is eligible under the newly inserted sub-sections. The application, along with required details in Annexure A, must be submitted electronically on the GST portal by 07-04-2025. The concerned officer will review the application and issue a rectified order within three months. The revised order will be reflected in Form GST DRC-08 or GST APL-04, depending on the nature of the original order. This rectification process provides significant relief for taxpayers affected by ITC restrictions during GST’s early years.

Introduction: The Government, on the recommendation of GST Council, has inserted sub-section (5) and sub-section (6) to section 16 of CGST Act, 2017 by Finance (No.2) Act 2024. Both these sub-sections were made effective on 27-09-2024 with retrospective date of 01-07-2017 i.e. from date of implementation of GST Laws for removal of difficulties faced by taxpayers during initial years of GST implementation.

Due to insertion of these beneficial provisions on 27-09-2024 with retrospective effect from 01-07-2017, various notices or orders including appeals, which either proposes or actually not allowed, ITC due to application of provision of sub-section (4) of section 16, raising demands were issued under Section 73 or section 74 or section 107 or section 108 of the CGST Act along with interest and penalties levied thereon for the FY 2017-18 and onwards.

Though due to these amendments, certain demands will not be payable now considering the amendments, the time for revision of the said demands may have expired and thus the Government has notified a special procedure for rectification of order, to be followed by the class of registered persons, against whom any order under section 73 or section 74 or section 107 or section 108 of the said Act has been issued confirming demand for wrong availment of input tax credit, on account of contravention of provisions of sub-section (4) of section 16 of the said Act, 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.

Analysis of sub-section (4) of section 16

Sub-section (4) of section 16 of CGST Act allows a registered person to take input tax credit in respect of any invoice or debit note for supply of goods or services or both till prescribed date* following the end of financial year to which prescribed documents# pertains or furnishing of the relevant annual return, whichever is earlier.

Analysis of sub-section (5) of section 16

The newly inserted sub-section (5) of section 16 provides that –

Notwithstanding anything contained in sub-section (4), the registered person will be allowed input tax credit [ITC] 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, if the said registered person has claimed input tax credit in any return under section 39 which is filed up to 30-11-2021.

Analysis of sub-section (6) of section 16

In the case of person whose registration is cancelled and subsequently restored, the said persons were not able to file their returns during the cancellation period. After the restoration of registration, while filing the return the input tax credit of the invoices and debit notes were not available due to expiry of time limit specified in sub-section (4) of section 16.

To give relief to such affected persons, newly inserted sub-section (6) of section 16 provides that –

The such person will be allowed input tax credit [ITC] in respect of an invoice or debit note for supply of goods or services or both, availment of which was not restricted on the date of cancellation of registration, if such person claims ITC in the returns, for the period upto cancellation, filed

a) Upto 30-11 following the financial year to which such invoice or debit note pertains or furnishing or annual return, whichever is earlier, or

b) within 30 days from the date of order of revocation of cancellation of registration,

whichever is later.

Similarly, such person will be allowed input tax credit [ITC] in respect of an invoice or debit note for supply of goods or services or both, if such person claims ITC in the returns, for the period from the date of cancellation of registration or the effective date of cancellation of registration, as the case may be, till the date of order of revocation of cancellation of registration, filed within 30 days from the date of order of revocation of cancellation of registration.

Eligible person for special procedure for rectification

Registered Person against whom any order under section 73 or section 74 or section 107 or section 108 of the CGST Act has been issued confirming demand for wrong availment of input tax credit, on account of contravention of provisions of section 16(4) of the CGST Act, but such input tax credit is now available as per the provisions of section 16(5) or section 16(6) of the CGST Act, and where appeal against the said order has not been filed.

Rectification Application

The said person shall file, electronically on the common portal an application for rectification of the said order.

Along with said application, the said person should upload information in Annexure A.

Details in Annexure A

a. Basic Details such as GSTIN, Legal and Trade Name and Order Details in respect of which rectification application is made;

b. Details of demand confirmed in the said order;

c. Details of demand confirmed in said order, of ITC wrongly availed in contravention of section 16(4), which is now eligible as per section 16(5);

d. Details of demand confirmed in said order, of ITC wrongly availed in contravention of section 16(4), which is now eligible as per section 16(6);

e. Declaration and Verification.

Application Time Limit

Any person who wishes to file a rectification application may do so on or before 07-04-2025.

Procedure on receipt of Application

Proper officer who had issued order will take a decision on said application and issue rectified order within period of 3 months from application date.

After issue of rectified order, the authority shall upload a summary –

a. in Form GST DRC-08, in cases where rectification is of an order issued under section 73 or section 74 of the CGST Act; and

b. in Form GST APL-04, in cases where rectification is of an order issued under section 107 or section 108 of the CGST Act.

Conclusion –

Beneficial provision of ITC allowability through special rectification procedure introduced is already effective from 27-09-2024 and benefit of the same should be availed to avail ITC which was denied due to applicability of sub-section (4) of section 16 on account of non-compliance in the initial years of GST implementation.

The views expressed in this article are author’s personal view as per his understanding of the provisions as they prevail today and it should not be construed as tax advice.