Summary of Implementation of Provision of section 16(5) and 16(6) of CGST Act through Circular No 237/31/2024

Government has provide clarification on Implementation of Provision of section 16(5) and 16(6) of CGST Act through Circular No 237/31/2024.

Key Points of the Circular No 237/31/2024

1. Section 16(4) of CGST Act is reproduced in this circular. This provision is related to registered person can claim the ITC for invoice and debit note up to 30th November following the end of financial year to which invoice or debit note pertains or date of furnishing annual return whichever is earlier. However, section 16(4) will not apply if ITC related to invoice or debit note for the financial year 2017-18 was claimed in the period  from 20-10-2018 to 20-04-2019 and its supplier has uploaded corresponding invoices in GSTR-1 by 11-04-2019.

2. Section 16(5) says if ITC related to invoice and debit note for the FY 2017-18, 2018-19, 2019-20 and 2020-21 is claimed on or before  30-11-2021, the provison of  section 16(4) will not apply in such case.

3. Section 16(6) states Where registration of a registered person is cancelled under section 29 and subsequently the cancellation of registration is revoked by any order, either under section 30 or pursuant to any order made by the Appellate Authority or the Appellate Tribunal or court and where availment of input tax credit in respect of an invoice or debit note was not restricted under sub-section (4) on the date of order of cancellation of registration, the said person shall be entitled to take the input tax credit in respect of such invoice or debit note for supply of goods or services or both, in a return under section 39,-

(a) filed upto thirtieth day of November following the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return,whichever is earlier; or

(b) 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, where such return is filed within thirty days from the date of order of revocation of cancellation of registration,

whichever is later.”

Let’s understand section 16(6) with example:

Note: In above all the cases, ITC of invoice or debit note was not restricted under 16(4) of CGST Act,2017.

4. No refund of any tax paid or input tax credit reversed shall be allowed in the contravention of section 16(4) where such ITC is now available under the section 16(5) and 16(6) of CGST Act,2017. [“However, it is clarified that said restriction on refund under section 150 of the Finance (No. 2) Act, 2024 will not apply to the refund of an amount paid as pre-deposit by the taxpayer as per sub-section (6) of section 107 or sub-section (8) of section 112 of the CGST Act, at the time of filing of an appeal, where such appeals are decided in favor of the said taxpayer] (This Paragraph added through Corrigendum to this circular]

5. Taxpayers whose ITC were denied because they did not comply with section 16(4) condtion (as explained above) and order u/s 73,74,107 or 108 were issued which confirm that the ITC claimed was wrong and demand for recovery was raised. Now with the change in section 16(5) and 16(6), ITC is now allowed which earlier denied. Taxpayer can rectify this situation by following specified procedure under Notification No 22/2024. The new Procedure is only for taxpayer who did not file appeal against earlier order in case of demand related to wrong availment of ITC.

Trade and industry requesting clear guidance on how they can now benefit from updated section 16(5) and 16(6) when demand were already raised against them.

Following clarifications has been issued:

1. Where no demand notice/statement has been issued under section 73 or section 74 of the CGST Act:

The taxpayer are eligible to claim the ITC under section 16(5) and 16(6) of CGST Act,2017 and proper officer need to consider the new provision and take appropriate action as this section inserted retrospectively from 01-07-2017.This also includes when intimation under DRC-01A was sent to taxpayer for ITC being denied since no formal demand notice under section 73 or 74 has been issued yet, the new section 16(5) & 16(6) will apply and taxpayer can claim the ITC.

2. Where demand notice/ statement under section 73 or section 74 of CGST Act has been issued but no order under section 73 or section 74 of CGST Act has been issued by the Adjudicating Authority:

In such cases, the Adjudicating Authority shall take cognizance of sub-section (5) or sub section (6) of section 16 of the CGST Act, inserted retrospectively with effect from 01.07.2017, and pass appropriate order under section 73 or section 74 of the CGST Act.

3. Where order under section 73 or section 74 of the CGST Act has been issued and appeal has been filed under section 107 of the CGST Act with the Appellate Authority but no order under section 107 of the CGST Act has been issued by the Appellate Authority:

In such cases, the Appellate Authority shall take cognizance of sub-section (5) or sub section (6) of section 16 of the CGST Act, inserted retrospectively with effect from 01.07.2017, and pass appropriate order under section 107 of the CGST Act.

4. Where order under section 73 or section 74 of the CGST Act has been issued and Revisional Authority has initiated proceedings under section 108 of the CGST Act, but no order under section 108 of the CGST Act has been issued by the Revisional Authority:

In such cases, the Revisional Authority shall take cognizance of sub-section (5) or sub section (6) of section 16 of the CGST Act, inserted retrospectively with effect from 01.07.2017, and pass appropriate order under section 108 of the CGST Act.

5.Where order under section 73 or section 74 of the CGST Act has been issued but no appeal against the said order has been filed with the Appellate Authority, or where the order under section 107 or section 108 of the CGST Act has been issued by the Appellate Authority or the Revisional Authority but no appeal against the said order has been filed with the Appellate Tribunal:

If taxpayer did not file an appeal against order that denied their ITC, can now apply for rectification under special procedure notified through Notification No 22/2024. Taxpayers must apply for rectification with in six months from 08-10-2024 i.e date of notification.

Taxpayer can file an application for rectification electronically after login to WWW.gst.gov.in

Taxpayer must submit Annexure-A which included details of demand raised in original order, Details of ITC that was earlier denied under section 16(4) but now is allowed under section 16(5) & 16(6) of CGST Act,2017.

The officer who issue the original order will decide the rectification application. The officer will rectify the order with in 3 month from date of such application. If the original order was issued under section 73 or 74 , the officer will upload summary of rectified order in FORM DRC-08. If the original order was under section 107 or 108. the officer will upload the summary in FORM GST APL-04,The officer will also check other reasons for denial of input tax credit mentioned in original order under section 73 or 74. if any other grounds for denial exist, those will also reviewed.

If the rectification negatively impacts the taxpayer, the officer must follow the principal of natural justice. An appeal against rectification order can be filed under section 107 or 112 of CGST Act as the case may be with in time limit specified therein. No refund of any tax paid or input tax credit reversed shall be allowed under the section 16(5) and 16(6) of CGST Act,2017.

The special procedure under Notification No 22/2024 can only be used if the order u/s 73,74,107 or 108 confirmed a demand due to wrong ITC Claim because of missed time limit under section 16(4), now that ITC is allowed under section 16(4) and 16(5). If the order does not involve any issue related to section 16(4), taxpayer can not use special procedure instead, they must file their rectification under section 161 of CGST Act,which has its own time limit and process.

If taxpayer mistakenly files a rectification application under special procedure but the order does not involve section 16(4) ITC Issue, the tax officer will reject an application with following remarks:

“The rectification application is rejected as it is found that the same is not covered under the notification No. 22/2024 – Central tax dated 08.10.2024, as no
such issue is involved in the said order pertaining to wrong availment of input tax credit on account of contravention of provisions of sub-section (4) of section 16 of the CGST Act, and 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 CGST Act”.

Downlaod – Circular No 237/31/2024