Introduction
In its 53rd meeting, the Goods and Services Tax Council (‘GST Council’) proposed an amendment to s. 16 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’). This amendment introduced via Finance (No.). Act, 2024 allowed for an extension of the time limit for availing input tax credit (‘ITC’) on invoices and eligible documents for the financial years (‘FYs’) 2017-18, 2018-19, and 2019-20, up to 30.11.2021. The Central Board of Indirect Tax and Customs (‘CBIC’) issued a Circular[i] regarding retrospective amendments made to s. 16 of the CGST Act. This update deals with the critical aspects of the Circular, its implications for taxpayers, and the procedural guidance issued for the rectification of past orders.
1. Amendments to s. 16 of the CGST Act
The amendments to s. 16 of the CGST Act inserted two new subsections, namely subsections (5) and (6), to address issues related to ITC availment with respect to past financial years. These sub-sections provide retrospective relief to taxpayers by clarifying procedural requirements for rectification.
Sub-section (5): It allows registered persons to claim ITC in any return filed under s. 39 up to 30.11.2021, with respect to invoices or debit notes pertaining to FYs 2017-18 to 2020-21. This change aligns with the clarifications issued during the 53rd GST Council meeting, which aimed to extend the ITC availment period to facilitate compliance.
Sub-section (6): It provides for ITC availment in cases where the registration of a taxpayer is revoked but subsequently restored. Such taxpayers can claim ITC for invoices issued prior to cancellation and post-revocation, subject to specified timelines. The CBIC’s clarification emphasized the importance of providing taxpayers with a fair opportunity to reclaim ITC in these scenarios.
2. Procedural clarification under the issued Circular
The Circular outlines the approach that tax authorities and taxpayers should adopt in light of the retrospective amendments. It also prescribes the steps for availing the benefit of these changes in five distinct scenarios:
Cases where no demand notice or statement has been issued: If no notice or statement under s. 73 or s. 74 has been issued, but investigations were ongoing regarding the alleged wrongful availment of ITC; tax authorities are now required to recognize the retrospective changes and take appropriate action. No further proceedings are required if only an intimation (Form DRC-01A) was issued.
Cases where demand notice has been issued but no order has been passed: Where a demand notice or statement under s. 73 or s. 74 has been issued, but no final order has been passed; the adjudicating authority is directed to take note of the amendments and pass an appropriate order in accordance with the updated provisions of ss. 16(5) and 16(6). This approach mirrors the steps outlined in the CBIC’s subsequent clarifications to ensure procedural consistency.
Cases where orders have been passed and appeals are pending: If an order has already been passed under s. 73 or s. 74, and an appeal is pending before the Appellate Authority under s. 107, the Appellate Authority must consider the retrospective amendments and pass a fresh order taking the changes into account. This alignment with the CBIC’s procedural framework helps ensure fair treatment of pending appeals.
Cases where revisional authority proceedings are pending: In cases where the revisional authority has initiated proceedings under s. 108 but has not issued an order, the Revisional Authority is required to take cognizance of the retrospective amendments and pass orders accordingly.
Cases where orders are final, and no appeal has been filed: If an order has been passed under ss. 73, 74, 107, or 108, no appeal has been filed; taxpayers may still avail themselves of the benefits under the retrospective amendments. A special rectification procedure, as notified under Notification No. 22/2024 - Central Tax, dated 08.10.2024, can be invoked. Taxpayers must file an application for rectification within six months from the date of the notification. This process requires the submission of a proforma (Annexure A) detailing the ITC amounts in question.
3. Special procedures for rectification of orders
The Circular has introduced a formal mechanism for rectifying orders issued under ss. 73, 74, 107, or 108 of the CGST Act, where ITC was disallowed due to the earlier interpretation of s. 16(4). Taxpayers are required to file rectification applications electronically through the GST portal, following a specific procedure that varies depending on the section under which the order was issued.
Orders under ss. 73 and 74 of the CGST Act: The rectification requests can be initiated via the ‘Application for rectification of order’ option on the GST portal.
Orders under s. 107 of the CGST Act: The rectification should be made through the ‘View Additional Notices/Orders’ section.
Orders under s. 108 of the CSGT Act: The taxpayers may submit rectification requests against revision orders issued by the revisional authority.
The proper officer is required to process the rectification application within three months and upload the rectified order summary using Form DRC-08 or GST APL-04. If the rectification adversely impacts the taxpayer, principles of natural justice shall be observed before finalizing the rectified order.
4. Limitation on refund claims:
S. 150 of the CGST Act explicitly prohibits refunds of taxes paid, or ITC reversed under the erstwhile provisions. This ensures that while the retrospective amendments offer the benefit of ITC to taxpayers, they cannot claim a refund for taxes already paid or ITC already reversed due to the earlier interpretation of s. 16(4) of the CGST Act.
Conclusion
The insertion of s. 16 (5) and (6) of the CGST Act marks a significant development in the GST framework. It relieves taxpayers who faced issues claiming ITC due to procedural errors, delayed filings, or cancelled registrations. By extending the ITC claim period and establishing a special rectification procedure, the CBIC promotes fairness and allows taxpayers to correct past mistakes without severe penalties.
The taxpayers should review the CBIC’s Circular in detail to assess their eligibility for these retrospective provisions. Given the limited window for rectification applications, timely action is essential to ensure compliance and avoid future disputes with tax authorities.
End Notes
[i] Circular No. 237/31/2024-GST dated 15.10.2024.
Authored by Manmohan Bhola, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.