Clarification on Time Limits for Input Tax Credit under RCM Supplies from Unregistered Persons- CBIC Circular 211/5/2024-GST Dated 26 June 2024
The Central Board of Indirect Taxes and Customs (CBIC) has issued Circular 211/5/2024-GST to provide clarity regarding the time limits for claiming input tax credit (ITC) under the Central Goods & Services Tax (CGST) Act, 2017. This circular specifically addresses ITC claims on tax paid under the reverse charge mechanism (RCM) for supplies received from unregistered persons.
Background and Representations
Trade and industry representatives have raised concerns about the time limit specified under section 16(4) of the CGST Act for availing ITC on tax paid under RCM. There have been instances where tax, payable on a reverse charge basis, was not initially considered a supply of services. Consequently, no invoice was issued, and no tax was paid. Later, upon clarification from authorities or court rulings, the recipient issued the invoice, paid the tax along with interest, and claimed ITC on the paid tax.
Field formations have interpreted the relevant financial year for section 16(4) as the year when the supply was received, limiting the ITC claim period to September/November of the following financial year. Conversely, the industry argues that the relevant financial year should be when the invoice was issued, allowing ITC claims until September/November of the financial year following the invoice issuance.
Examination and Clarification
To ensure uniformity in law implementation, the Board, exercising its powers under section 168(1) of the CGST Act, clarifies as follows:
- Invoice Requirement: Under section 16(2)(a) of the CGST Act, a registered person can claim ITC only if in possession of a tax invoice or similar document issued by a registered supplier.
- Rule 36(1)(b) Compliance: As per Rule 36(1)(b) of the CGST Rules, ITC can be claimed based on an invoice issued under section 31(3)(f) of the CGST Act, provided the tax is paid.
- Recipient’s Responsibility: Section 31(3)(f) mandates that the recipient, liable to pay tax under section 9(3) or 9(4) on supplies from an unregistered supplier, must issue an invoice and pay the tax in cash under RCM.
- Time Limit for ITC Availment: Section 16(4) specifies that ITC cannot be claimed after November 30th of the financial year following the year of the invoice or the relevant annual return, whichever is earlier.
- Financial Year Relevance: ITC can only be availed with a tax invoice or similar document. For RCM supplies from unregistered suppliers, the invoice issued by the recipient determines the relevant financial year for section 16(4).
Key Points of Clarification
- Invoice Issuance by Recipient: The financial year in which the recipient issues the invoice under section 31(3)(f) is the relevant year for ITC claims under section 16(4), provided the tax is paid and other conditions are met.
- Delayed Payment and Interest: If the recipient issues the invoice and pays tax after the supply time, they must pay interest on the delayed tax payment.
- Penal Actions: Late invoice issuance may also attract penalties under section 122 of the CGST Act.
In summary, for supplies from unregistered suppliers under RCM, the financial year of the invoice issuance by the recipient is crucial for determining the ITC claim period. This ensures clarity and uniformity, reducing potential litigation and compliance issues.
To Access the official notification of the Circular CLICK HERE
To Download the Circular 211/5/2024 – GST CLICK HERE
Also Read: CBIC Circular No. 207/1/2024-GST: Fixing of Limits for the Department Appeals
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