Preliminary
The CBIC vide Notification no. 18/2022- Central Tax dated September 28, 2022 notified the following changes in this regard vide Sections 100 and Section 104 of the Finance Act, 2022 in the Central Goods and Services Tax Act, 2017 (“the CGST Act”) read with Central Goods and Services Tax (Second Amendment) Rules, 2022 notified vide Notification No. 19/2022- Central Tax dated September 28, 2022 both w.e.f. October 01, 2022
In this article, we will summarized the Input Tax Credit Provisions under Section 16(2) CGST Act, 2017 from 01-10-2022 after considering amendments vide notification 18/2022 – Central Tax dated 28-09-2022.
1. New Limitations for availing ITC
Section 16 of the CGST Act, 2017 delas with eligibility and conditions for claiming ITC. It provides five specific conditions in section 16(2) which are as below:
(a) The registered person is in possession of tax invoice or debit note;
(aa) The detail of above invoice / debit note is 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;
(b) The registered person has received that goods or service;
(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted
(c) The supplier has made payment of GST applicable on such supply to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply and;
(d) The registered person has furnished its return.
By virtue of amendment, a new clause (ba) is inserted in the above list which provides as below:
(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;
This means that new clause (ba) inserted in Sec 16(2) is an additional condition for claiming ITC by buyer that ITC can be claimed only if that ITC has not been restricted in auto generated statement-GSTR-2B u/s 38 of CGST Act, 2017.
Understanding the provision under section 38
Earlier, section 38 of the CGST Act dealt with furnishing of details of Inward supply and prescribed for filing of Form GSTR 2 containing detail of inward supplies on which the taxpayer is claiming ITC. However, this mechanism could never be implemented since implementation of GST law.
Now by virtue of the amendment introduced w.e.f 01.10.2022, an entire section 38 is substituted with a new section which provides for ‘Communication of details of inward supplies and Input Tax Credit’. Therefore, the old section 38 has been replaced with the new one to prescribe the manner, time, conditions, and restrictions for communicating details of ITC through an auto-generated system. Also providing for ITC that can be availed or cannot be availed by the recipient.
As per the new section 38, the details furnished by the supplier in GSTR 1 shall be communicated to the taxpayer in an auto-generated statement GSTR 2B. The section is reproduced as under:
(1) The details of outward supplies furnished by the registered persons and an auto-generated statement containing the details of input tax credit shall be made available electronically to the recipients of such supplies.
(2) The auto-generated statement under sub-section (1) shall consist of––
(a) details of inward supplies in respect of which credit of input tax may be available to the recipient; and
(b) details of supplies in respect of which such credit cannot be availed, whether wholly or partly, by the recipient, on account of the details of the said supplies being furnished under sub-section (1) of section 37,––
(i) by any registered person within such period of taking registration as may be prescribed; or
(ii) by any registered person, who has defaulted in payment of tax and where such default has continued for such period as may be prescribed; or
(iii) by any registered person, the output tax payable by whom in accordance with the statement of outward supplies furnished by him under the said sub-section during such period, as may be prescribed, exceeds the output tax paid by him during the said period by such limit as may be prescribed; or
(iv) by any registered person who, during such period as may be prescribed, has availed credit of input tax of an amount that exceeds the credit that can be availed by him in accordance with clause (a), by such limit as may be prescribed; or
(v) by any registered person, who has defaulted in discharging his tax liability in accordance with the provisions of sub-section (12) of section 49 subject to such conditions and restrictions as may be prescribed; or
(vi) by such other class of persons as may be prescribed.
Thus, the above section introduces a completely new mechanism under which the auto-generated GSTR 2B shall itself decide and provide the list of Invoices or Debit notes on which ITC can be claimed by the taxpayer. This provides for amended/new Form GSTR-2A/2B where details of inward supplies are communicated to the taxpayer with a bifurcation as to which ITC is admissible to the taxpayer and what all ITC cannot be taken by a taxpayer owing to reasons, such as –
a. a newly registered supplier(prescribed time limit); or
b. a supplier who has defaulted in payment of tax and where such default has continued for such period as may be prescribed; or
c. a supplier whose tax payable is more than tax paid during the said period by such limit as may be prescribed; or
d. a supplier who has claimed ITC of an amount more than ITC eligible to claim as per GSTR 2B; or
e. a supplier who has utilized ITC for payment of output tax more than the limit prescribed; or
f. by such other class of persons as may be prescribed.
Mandatory implication of section 38
As per the newly inserted clause (ba) in section 16(2), it provides mandatory condition that ITC claimed by recipient should not be restricted under section 38. Hence ITC restricted or in-eligible as per GSTR 2B cannot be claimed as per clause (ba) of section 16(2).
Extension of time limit for claiming missed ITC
The time limit to claim ITC against an invoice or debit note is earlier of two dates, given below:
The due date for filing GST returns for September of the next financial year.
The date of filing the annual returns in form GSTR-9 relating to that financial year.
Hence, the due date of filing GST return for September 2022 (belonging to FY
2022-23) is 20th October 2022** or the date of filing GST annual return for FY 2021-22 is 31st December 2022 whichever is earlier.
After the amendment, the last date for claiming any ITC for Tax Invoice or Debit Note related to preceding Financial Year is extended from 20th October to 30th November of the subsequent FY. So, if there is any ITC related to FY 2021-22 which is still not claimed, can be claimed upto 30th day of November 2022.
Similarly, the time limit of 20th October prescribed in section 34 for declaring detail of a Credit Note pertaining to any supply made in preceding FY is also revised and allowed up to 30th November or furnishing of Annual Return, whichever is earlier.
‘Provisional ITC’ and ‘Matching Concept’ – Removed
According to section 41 of the CGST Act, the ITC claimed by a taxpayer in GSTR 3B shall be provisional, until it is matched and finalised as per provision of section 42 & 43 and corresponding rules. However, this mechanism could also never be implemented as GSTR 2 return was never filed.
Now this entire concept is being removed by substituting section 41 and section 42 & 43 being omitted. The new section 41 provides that the taxpayer shall self-assess and claim ITC in GSTR 3B. It further provides that in case the taxpayer has claimed ITC of GST which is not paid/ deposited by the corresponding supplier, than the taxpayer / recipient shall reverse the ITC along with interest.
The recipient shall be eligible to re-claim the ITC reversed, on payment of GST by the supplier.
Conclusion
ITC is a mechanism to avoid cascading of taxes. Government has introduced various amendments from time to time for smooth process of ITC. Government made an amendment to CGST and services tax Act to give more time to businesses for claiming input tax credit, issuing credit notes, and removing errors by extending the due date of September 30 to November 30. Further, Government has introduced new sections so that ITC can be claimed by genuine taxpayers and no one could avail undue advantage of the other. No doubt, in some aspect, it will affect the genuine taxpayers also.