Time limit under various scenarios for availment of GST Credit

[Sourabh Kotecha]

Section 16(1) of CGST Act, 2017 provides a registered person entitlement to avail credit. However, the entitlement is subject to conditions and restrictions as may be prescribed. There are several conditions such as possession of invoice, receipt of goods or services, etc. The present article explores the restriction prescribing a time limit for availment of credit.

Section 16(4) which restricts time limit for availment of credit reads as ‘A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 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’

Following things can be gathered from plain reading of the provision:

• Restriction is with reference to both invoice and debit note.
• After amendment to Rule 61(5) of CGST Rules, 2017, Form 3B is the return under Section 39 (till the time Form 3 is made operational).
• Time limit for availing credit is earlier of (i) filing of relevant annual return or (ii) due date of furnishing of 3B for the month of September following end of financial year (i.e. 20^th October).
• Financial year for the purpose of time limit is as below:
  • Credit taken w.r.t. invoice – Financial year to which such invoice pertains.
  • Credit taken w.r.t debit note – Financial year of original invoice relating to which debit note has been raised.
• Time Limit is earlier of actual date of furnishing of annual return (since furnishing of annual return is not preceded by due date) and due date of GSTR 3B for the month of September. Thus, if an assessee files GSTR 3B of September before due date of September GSTR 3B, but does not take credit of previous financial year invoice, he may claim credit till 20^th October. However, credit can be claimed presently only by way of GSTR 3B (other than ISD). This is also enshrined in Section 16(2)(d) which mentions one of condition for availing credit i.e. ‘he has furnished return under Section 39’. In such case, assessee may file his annual return before 20^th October and show this credit for previous financial year invoice. To ensure credit is reflected in books, he may include it in GSTR 3B of October.

Before analysing present provisions in depth, a comparison with CENVAT Credit Rules, 2004 (CCR) [3^rd proviso to Rule 4(1) and 6^th proviso to Rule 4(7)] is given below to gain better understanding of current provisions.

W.r.t.	CENVAT Credit Rules	GST
Provision	‘Provided also that the manufacturer or the provider of output service shall not take CENVAT credit after one year of the date of issue of any of the documents specified in sub-rule (1) of rule 9. [3rd proviso to Rule 4(1) and similar provision exists in 6th proviso to Rule 4(7) for input services]	A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 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’
Applicability	The time limit applied only for credit on inputs and input services and not on capital goods.	The restriction applies for all credits: inputs, input services and capital goods.
Scope	Rule 9(1) of CCR mentions all documents such as invoice, bill of entry, challan evidencing payment of service tax, invoice issued by ISD, etc. Thus, time limit is applicable for all credits taken on basis of any documents.	Restriction applies only for credit taken on basis of invoice or debit notes.
Reference date	CCR clearly specifies that time limit shall apply from date of issue of documents on basis of which credit has been taken.	GST provisions specifies that time limit will be considered with reference to ‘financial year to which such invoice or invoice relating to such debit note pertains’.

Now, we delve into analysis of current provisions prescribing time limit for availment of credit:

Q:        Whether the time limit applies for all credit which may be taken on basis of various documents?

A:        Section 16(2) provides that a registered person is entitled to credit only if he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed.  Rule 36(1) mentions credit shall be availed on basis of following documents:

(a) an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31;

(b) an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31*, subject to the payment of tax;

(c) a debit note issued by a supplier in accordance with the provisions of section 34;

(d) a bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for the assessment of integrated tax on imports;

(e) an Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule 54.

* Section 31(3)(f) : a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9 shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both; [in short, registered person who is liable to pay tax on reverse charge basis u/s 9(3) [specified services like GTA, rent-a-cab, etc] or u/s 9(4) [supplies from unregistered person] for procurements made from unregistered supplier is required to issue invoice on such procurements i.e. self invoicing]

  Sec. 16(2) mentions tax invoice or debit note issued by a registered supplier. Thus, tax invoice or debit note can be a valid document only for availment of credit on procurements made from registered supplier. For unregistered supplier, the document for availing credit would be ‘such other tax paying documents’. On a combined reading of Section 16(2) and Rule 36(1), invoice issued under Sec. 31(3)(f) (self invoicing), bill of entry, ISD invoice forms such other tax paying documents.

As per Section 16(4) and Rule 36(1), the restriction of time limit applies only for credit availed on the basis of any invoice or debit note. Reference is made to Section 2(66) which provides that "invoice" or "tax invoice" means the tax invoice referred to in section 31. Section 31(1) and 31(2) deals with issue of tax invoice for supply of taxable goods or services. Section 31(3) is a notwithstanding clause and deals with issue of non-requirement to issue invoice, bill of supply, receipt voucher, refund voucher, self invoice, etc for specified cases.

It may be noted that invoice u/s 2(66) only refers to tax invoice as defined in Section 31 and not to all documents issued u/s 31. Section 31(1) and 31(2) deals with issue of tax invoice for supply of goods and services, whereas Section 31(3) deals with alternative documents required in other cases. This is also supported by the fact that issue of tax invoice is required only in Section 31(1) and Section 31(2). In Section 31(3), nowhere an assessee is required to issue a tax invoice. Thus, documents issued u/s 31(3) are not tax invoices for the purpose of Section 2(66) of CGST Act and accordingly, not an invoice for the purpose of GST.

Thus, documents issues u/s 31(3)(f) i.e. self invoice is not an invoice for the purpose of GST and time limit of Section 16(4) may not apply to them as Section 16(4) time limit applies only to invoice or debit note.

The table below shows a summary of basis of availment of credit and whether time limit u/s 16(4) applies or not:

Nature of procurement	Basis for availing credit	Whether time limit applies u/s 16(4)
Procurement from registered person, supply taxable under Forward Charge (FCM)	Invoices issued  by supplier	Yes
Procurement from registered person, supply taxable under reverse charge (RCM)	Invoices issued by supplier	Yes
Procurements from unregistered person, supply taxable under RCM	Self invoice	No
Import of goods	Bill of entry	No
Import of services	Self invoice	No
ISD distribution	ISD invoice	No

It may also be noted that reference document for time limit u/s 16(4) would be the same as document for availing credit u/s 16(2). Thus, if document for availing credit is invoice issued by supplier, Section 16(4) time limit restriction would also apply according to invoice issued by supplier. Section 16(4) and 16(2) are both part of overall structure of ‘Eligibility and conditions for taking input tax credit’. Thus, both have to be read together and in harmony.

Q:        How to infer ‘financial year’ for applying time limit?

A         Sec. 16(4) provides that time limit will be considered with reference to ‘financial year to which such invoice or invoice relating to such debit note pertains’.  It is not identical to CCR which provides ‘after one year of the date of issue’. CCR is very clear that time limit shall apply from date of issue of invoice or relevant document. It may also be noted that Section 16(2) which provides for reversal of credit due to non payment of consideration mentions that 180 days shall be calculated from ‘date of issue of invoice’. Thus, different provisions under same Section uses different phrase. This may cause different interpretations to arise.

One school of thought may be that Section 16(4) does not refer to date of invoice as such. It refers to financial year to which such invoice pertains. Collins Dictionary defines ‘Pertain to’ as ‘it relates, belongs, or applies to it’. In instance where supplier provides an invoice dated 01.04.2020 for service provided in January 2020, a view may be taken that the invoice is pertaining to 2019-20 and last date for availing credit would be return filing date of September 2020 instead of September 2021. Similar instance may be taken for RCM cases.

Further, the phrase ‘from the date of issue of invoice’ may have not been used as CCR provided a fixed period of 1 year for all invoices and GST provisions provide a fixed date for all invoices of a particular period. Thus, to refer to a period, it has used the term pertains to and not specifically to the date of invoice. The phrase ‘Pertains to’ is very subjective and open to varied interpretation and litigations. However, resorting to interpretation other than invoice date would lead to practical difficulties such as provision of service and receipt of service may be in different time periods for supplier and recipient respectively. It is expected that Courts may rule in favour of assessee taking into account CCR provisions specifically mentioning invoice date. Till such time, Departmental circular clarifying the provision would help in reducing confusion of assessees and avoid litigations on this issue.     

Q:        Whether time limit also applies to re-availment of credit, reversed earlier due to non payment to vendor?

A         Section 16(2) provides that if a recipient fails to pay the supplier the value of goods or services along with tax within 180 days from date of issue of invoice, the ITC availed shall be added to his output tax liability along with interest. Further, the recipient shall be entitled to re-avail credit when the payment is made. A question arises whether time limit as mentioned in Section 16(4) applies to said credit.

 This has been clearly answered in Rule 37(4) which provides that time limit specified in Section 16(4) shall not apply to reclaim of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier.

Various other scenarios and questions may arise in interpreting different provisions of GST. While we all are analysing tax provisions as per our understanding, Departmental Circulars clarifying the provisions would go a long way in ensuring GST being a ‘Good and Simple Tax’.