It was a nightmare for the recipients when GST introduced Section 9(4) of the CGST Act, which mandated the recipients to pay tax for the supplies received from unregistered suppliers under the Reverse Charge Mechanism (RCM). Recipients had to classify the goods and services, including finding out HSN/SAC codes and the applicable tax rates. In order to avoid such tedious work, recipients preferred to purchase goods and services from registered suppliers, which adversely affected the unregistered suppliers. Either these unregistered suppliers registered themselves under GST or lost business because they remained unregistered.
Then the relief came from the Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018), brought into force w.e.f. February 1, 2019; thereby, only certain specified categories of goods and services received from unregistered suppliers were brought under RCM.
Since there are confusions or a lack of knowledge about RCM, many recipients fail to pay tax under RCM, and only when the department points out such discrepancies through audits and scrutiny notices do they make the payment along with interest. However, there is a hesitance about whether ITC can be availed from such delayed tax payments under RCM.
Section 16(4) of the CGST Act prescribes a time limit to avail the ITC that the ITC cannot be availed from any invoice or debit note after the 30th of November following the end of the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.
If the invoice or debit note is generated in the year 2023–24, the maximum time limit to avail ITC from such an invoice or debit note is 30th November 2024, i.e., ITC can be availed in GSTR 3B filed for the month of October 2024. If the annual return for 2023–24 is filed before that, then the date on which the annual return is filed is the last date to avail of ITC.
According to Section 31(3)(f), registered persons who are liable to pay tax under RCM shall issue an invoice for the goods or services received from the unregistered suppliers on the date of receipt of such goods or services.
So it is necessary to issue an invoice on the date when the goods or services are received from unregistered suppliers; failure to do so will invite penalty and non-payment will give raise to interest.
Since the invoice is generated by the registered persons by their own for the supplies received from unregistered persons, they can issue invoice in the year in which the tax is paid under RCM. Whether ITC on such invoice is eligible to be availed is clarified by the Circular No. 211/5/2024-GST dated 26th June 2024.
According to the circular, the registered person can avail ITC on the invoices issued under Section 31(3)(f) for the supplies received from unregistered persons till 30th November of the following the end of the financial year in which the invoice is generated. The time limit to avail ITC under Section 16(4) squarely applies to the invoices generated by the recipients under RCM for the supplies received from unregistered persons.
Since ITC can be availed by the recipient only on the basis of invoice or debit note or other duty paying document, the recipient paying tax under RCM can avail ITC of the invoice generated by their own.
Disclaimer: This article is only for the purpose of understanding the provisions of the Act, The author bears no responsibility on decisions taken by the readers whatsoever. E&OE.
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