There is a lot of confusion around sec 16(4) and there are many taxpayers who are suffering from lapses of ITC due provision of Sec 16(4) especially in the case of RCM where they forgot to deposit RCM on supply received from an unregistered person now they want to claim ITC on RCM even after expiry of Sec 16(4). I am here trying to explain an interpretation of section 16(4) read along with Sec 31(3)(f) with a practical situation.


Sec 31(3) (f) :-“A registered person who is liable to pay tax under RCM (reverse charge mechanism)] shall issue a self invoice in respect of goods or services received by him on the date of receipt of goods or services from the unregistered supplier. “

Sec 16(4) :-A taxable person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services after furnishing of the return under section 34 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

The fact of the practical case: –

 Mr. X is involved in the trading of Steel and his annual turnover is more than 10 crores. He purchases steel from outside the state and sells it locally to the retail traders. To move steel from one state to another state, he is required to incur heavy transport expense which is a taxable event and liable for taxation under reverse charge mechanism (RCM) under Sec 9(3) of CGST Act, 2017 in which Mr. X has to pay tax on behalf of transporter.

While concluding and finalizing the returns in the form GSTR-9 & GSTR-9C, Mr. X had prepared a reconciliation statement of ITC. In such reconciliation, Mr. X has come across the situations wherein he failed to declare tax payment in GSTR3B on transport expense of Rs. 60 lacs from unregistered persons, which is liable to be taxed under reverse charge mechanism.

In this situation, Mr. X is ready to make payment of tax on transport expenses along with the applicable interest thereon under Sec 50. But, he wants to avail ITC on the taxes so paid under RCM, which he is paying as a result of the reconciliation of ITC. However, the time limit of availing ITC already expired that was 31-03-2018 as per provision of Sec 16(4) read along with Notification No. 44/2018 Central Tax dated 10th September 2018.

Provisions of RCM :-

To comply with the reverse charge mechanism, Mr. X shall require to comply with the provision of self-invoice in case of the inward transaction from unregistered suppliers as per provision of Sec 31(3)f and declare for taxation in GSTR 3B.

Further, he can claim the input tax credit on self-generated invoice to duly comply with the conditions of admissibility of ITC as mention in Sec 16(2) either on a provisional basis in the same month as GSTR 3B or any further GSTR3B but before the time limit specified in 16(4) i.e. on or before the due date of furnishing of GSTR 3B returns of September month of the following year (i.e. 20 Oct of the following Year ) or furnishing of annual return, whichever is earlier.

As per the provision of Sec 31(3)(f) read along with Rule 47 of the CGST Act, Mr. X shall mandatorily issue self-invoice within a time of 30 days from the date of supply of services. However, the provision of Sec 31(3)(f) does not stop Mr. X from issuing self invoice even after the expiry of 30 days. Thus, we can interpret that provision of Sec 31(3)(f) will only consequence in penal and interest.

Further, CBIC issued a press release on 3 July 2019 to address issues related to annual return which CBIC stated in point (g) as follows –

‘Many taxpayers have requested clarification on the appropriate column or table in which tax which was to be paid on reverse charge basis for the FY 2017-18 but was paid during FY 2018-19. It may be noted that since the payment was made during FY 2018- 19, the input tax credit on such payment of tax would have been availed in FY 2018-19 only. Therefore, such details will not be declared in the annual return for the FY 2017- 18 and will be declared in the annual return for FY 2018-19. If there are any variations in the calculation of turnover on account of this adjustment, the same may be reported with reasons in the reconciliation statement (FORM GSTR-9C).’

It clearly stated that RCM input will be available in the year of tax payment. So, in this case, Mr. X is eligible for input Tax in FY 2020-21 as he made payment of tax paid on RCM in FY 2020-21.

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