Clarification on ITC Claim Time Limits for RCM Supplies from Unregistered Persons

Introduction

The Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 211/5/2024-GST to clarify the time limit for availing input tax credit (ITC) under Section 16(4) of the Central Goods and Services Tax (CGST) Act, 2017. This clarification addresses concerns regarding supplies received from unregistered persons under the reverse charge mechanism (RCM).

Issue and Context

Trade and industry representatives raised concerns about ITC time limits on tax paid under RCM for supplies from unregistered persons. Activities by overseas related persons, without consideration, initially lack invoices or tax payments. Later, after clarification, audit, or court judgment, recipients issue invoices, pay tax with interest, and claim ITC.

Clarification by CBIC

To ensure uniform implementation, the CBIC has clarified the following:

Invoice and Tax Payment Requirements

• ITC can be availed if the recipient possesses a tax invoice, debit note, or prescribed documents as per Section 16(2)(a).
• ITC shall be availed based on an invoice issued under Section 31(3)(f) of the CGST Act, subject to tax payment.
• Section 31(3)(f) requires a registered person to issue an invoice for goods or services received from an unregistered supplier and pay the tax under RCM.

Time Limit for ITC Availment

• The Finance Act, 2022, amended Section 16(4) of the CGST Act to specify that the ITC availment time limit links to the financial year of the invoice or debit note.
• In RCM cases, when the recipient issues the invoice as per Section 31(3)(f), the ITC availment financial year is the year of invoice issuance, provided the tax is paid and other conditions are met.

Implications of Delayed Invoicing

• If the recipient issues the invoice after the time of supply, they must pay interest on the delayed tax payment.
• Delayed invoicing may also result in penalties under Section 122 of the CGST Act.

Detailed Explanation

1. Relevant Financial Year for Invoice:
   • The CBIC clarifies that the relevant financial year for the purpose of Section 16(4) in RCM cases is the year in which the recipient issues the invoice under Section 31(3)(f).
   • ITC can only be availed if the recipient is in possession of the necessary tax documents, and the tax has been paid under RCM.
2. Combined Reading of Provisions:
   • Reading Sections 16(2)(a), 31(3)(f), and 16(4) of the CGST Act, along with Rule 36(1)(b) of the CGST Rules, confirms that the recipient must issue the invoice for ITC availment in RCM cases.
   • The financial year of invoice issuance determines the time limit for ITC availment.
3. Interest and Penalties:
   • If the invoice is issued late, interest on the delayed tax payment is required.
   • Recipients may also face penalties under Section 122 of the CGST Act for delayed invoicing.

Conclusion

This clarification resolves conflicts and ensures uniformity in the application of the CGST Act’s provisions across various field formations. It provides clear guidance on the time limits for availing ITC for supplies received from unregistered persons under RCM.

For more information please refer below attached circular :

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This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.

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