Section 16(2) vs 16(4), Goods and Services Tax - GST

[NARENDER YARRAGORLA]

Is section 16(2) of CGST act overriding section 16(4) of CGST act?

Posts / Replies

[Alkesh Jani]

Shri

The Section 16(2) begins with "Notwithstanding anything contained in this section,.." this kind of clause is known as "Non-obstante clause" so it has overriding effect over general provisions of Section 16, including section 16(4).

Thanks

[NARENDER YARRAGORLA]

Thanks for ur reply sir, if section 16(2) overrides 16(4), can we claim ITC even after September month return filing of next year sir?

[KASTURI SETHI]

In case availing of ITC is hit by Section 16(4) of CGST Act, and ITC is taken, the department will issue SCN.

[Alkesh Jani]

Shri,

No, I do not agree with the interpretation advanced by you, the reason is the word ‘contrary’ is missing in the Section 16(2). Further, the words “Notwithstanding’ here means that all the conditions stipulated under Section 16(2) is to be followed first and then conditions stipulated in other sub-section is to be adhered to. Therefore, condition mentioned in Section 16(4) is additional condition to Section 16(2).

For availing ITC also refer to Issue ID = 117667.

Thanks

[NARENDER YARRAGORLA]

Thank you sir for detailed explantion sir

[Krishna Murthy]

Aklesh Jani Sir,

From the above, it means that only when all the conditions u/s 16(2) are fulfilled first, then only 16(4) needs to be fulfilled. One of the conditions u/s 16(2) is possession of invoice. If the buyer can prove that invoice is received at a later date say for example Date of Invoice is 25-03-2021 and the buyer has received the invoice to his possession on 30-11-2021, then the conditions u/s 16(2) are fulfilled only on 30-11-2021. Since Section 16(2) overrides Sec 16(4), will the buyer be eligible to claim ITC on 30-11-2021?

[KASTURI SETHI]

In this scenario, the buyer will not be eligible.

[Alkesh Jani]

Shri Krishna Murthyji,

In this regard, I am of the view that, the conditions mentioned in sub-section (2) are fulfilled on 30.11.2021, now Section 16(4) comes into play and ITC hits by time limit prescribed under section 16(4). So ITC will not be available in this circumstance.

Thanks

[KASTURI SETHI]

If it is so, then how sub-section 2 overrides sub-section 4 of Section of CGST Act ?

[Alkesh Jani]

Shri Kasturiji Sir,

Please refer to my reply No.4 dated 01.12.2021. as there is nothing contrary contained in Section 16(4) to the provisions of Section 16(2), even overriding effect of section 16(2) will continue and section 16(4) is to be followed.

However, you are requested to go through the marginal heading of Section 16 which says “Eligibility and conditions for taking input tax credit” therefore, first eligibility of the registered person is to be fulfilled and when he becomes eligible, he can take the credit. The preliminary test for eligibility is Section 16(1) that he should be a registered person (pls refer definition), secondly, although he is registered person, he is entitled (allowed) to take credit after satisfying the provisions of Section 16(2).

Now, as the registered person has satisfied the provisions of Section 16(2), if he has taken the credit and has also claimed the depreciation under IT Act, ITC taken will be disallowed (as a procedure needs to reverse) as per Section 16(3).

As per section 16(4) unless all the provisions of section 16(2) are satisfied, the ITC taken for any invoices which are covered by the provision for time limit needs to be reversed.

Hope this may satisfy your doubt.

Thanks

[KASTURI SETHI]

Dear Sir,

I 'fail' to understand.

[Alkesh Jani]

Respected Kasturiji Sir,

It is not that you 'fail', it is my failure to present it properly. You are requested to convey which part or whole needs to be elaborated.

Thanks

With Regards.

[Shilpi Jain]

I agree that 16(4) is additional condition. So both 16(4) and 16(2) have to be satisfied to be eligible for credit.

Scenario where invoice issued in previous FY and received later, credit will not be eligible if credit is not availed before lapse of 16(4) time. However, say the vendor informs the recipient that invoice has been issued and if the credit is availed by section 16(4) time limit, the mere receipt of invoice after section 16(4) time will not make the credit ineligible.

[KASTURI SETHI]

Madam Shilpi Jain,

I fully agree with your views. Pl.comment upon whether Section 16(2) overrides Section 16 (4) of CGST Act.

[Alkesh Jani]

Shri Kasturiji Sir,

Please allow me to make one more effort for presenting how Section 16(2) overrides other provisions of Section 16. As Section 16 has undergone the four amendments the provision effective from 01.01.2021 is discussed here.

At the very outset, the provisions of Section 16(2) which put the conditions (indicative) is stated below:-

(a) he is in possession of Invoice/debit note issued by the supplier

(b) he has received goods and/or services

(c) Tax charged by the supplier has been actually paid to the government account.

(d) he has furnished the return under Section 39

And the credit will be credited to the credit ledger (on provisional basis) on filing the return GSTR-3B, we can say that credit is availed (taken).

Now coming to sub-section (1) of section 16, where it is stated that every registered person is entitled (allowed) to take the credit of tax charged by the supplier, here no documentary evidence is mentioned therefore, overriding effect of 16(2) will come into play and registered person is bound to fulfill the condition stipulated therein, i.e., possession of Invoice, received goods and/or services etc. and all the provisions of 16(2) is applicable. If the documents do not satisfy the provisions of section 16(2), registered person is required to reverse the ITC in their GSTR-3B return.

For sub-section 3 of Section 16, wherein it is stated that in case of Capital goods (refer definition of Capital goods), which are capitalized in the book of accounts, as no documentary evidence for availing credit is stipulated, but for this purpose the provisions of Section 16(2) i.e., he is possession of Invoice/ debit note will be applicable, on satisfying the same, if ITC is availed the depreciation on the said capital goods cannot be claimed with IT department, in order to restrict double benefits. Hence, after satisfying provisions of Section 16(2) provisions of Section 16(3) will come into play as an additional condition.

For sub-section (4) of Section 16, states for the time limit for availing credit, as we know there cannot be limitless, if no time limit is mentioned, the act of limitation would be applicable. So, for any credit availed after satisfying the provisions of Section 16(2), if the Invoices which are older than the time limit prescribed in section 16(4) will be applicable.

Although Section 16(1), (3) and (4) are independent, but conjoint reading with Section 16(2) is mandatory for harmonizing with the other provisions of section 16 (applying the rule of interpretation).

For all the above, the credit will be credit to the credit ledger of the assessee on provisional basis and which can be either reversed if the conditions stipulated under Section 16(2) are not satisfied and also as per the other provisions such as Section 17(5).

As per above, we can conclude that Section 16(2) is having the overriding effect, for documentary evidence, for availing ITC.

There are other provisions such as Suo moto registration or cancellation of registration, audit, investigation, scrutiny etc. where the benefit available to the assessee should be extended by the department and overriding effect of Section 16(2) may play an important role.

This is the best of all I have.

Thanks,

With Due Regards.

[Shilpi Jain]

What i generally understand is that 'notwithstanding' comes into play when there is a contrary provision and not when there is an additional condition. I see s 16(4) as an additional condition. Hence 16(2) does not override s 16(4). Both have to be fulfilled.

[KASTURI SETHI]

Madam Shilpi Jain,

Thanks a lot for your clear-cut view.

[Ganeshan Kalyani]

Sri Alkesh Ji is trying to say that condition of Sec 16(2) is first need to be fulfilled and thereafter the provision of Sec 16(4). So in one way sec 16(2) is overriding sec 16(4).

Sri Alkesh Ji, I have made wild guess. I may be wrong. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

With due respect to you and Sh.Alkesh Jani Ji both. What do you mean by "in one way' ? Either come this way or that way. 'One way' has no room here. Either yes or no. When we say one Section overrides another Section, it will override on the whole.. There is no sub-way. Our destination is one and only one. Whether we are able to reach there ? That is the question in this situation. No question of 'route'. We cannot force any person to agree.

Anyhow, all ideas should be welcomed because each idea which is off beat teaches me new line of thinking. To agree or not agree remains open-ended.

[SHARAD ANADA]

1) Rainbow Infrastructure Private Limited & Anr. Vs.Assistant Commissioner, State Tax, Goods and Service Tax, Barrakpore Zone & Ors

Plea challenging Section 16(4) of the CGST Act for denying ITC if not claimed within due date of Furnishing of Return: Calcutta HC issues notice

2) M/S SURAT MERCANTILE ASSOCIATION & 5 other(s) Versus UNION OF INDIA & 2 other(s) - 2021 (1) TMI 1096 - GUJARAT HIGH COURT

Writ Petition challenging Provision for Input Tax Credit under GST: Gujarat High Court issues notice to Govt

The appellant, Surat Mercantile Association challenged the constitutional validity of Section 16(4) of the GST Act, 2017 on the ground of being manifestly arbitrary and violative of Articles 14, 19(1)(g) and 300A respectively of the Constitution.

[Satish Talnikar]

Dear Sirs,

One of the conditions of Section 16 (2) is filing of return under Section 39 i.e. GSTR-3B. The does not prohibit belated filing of GSTR-3B albeit with late fee and interest. Thus, if a tax payer, for some genuine reason, say due to financial crisis, is unable to pay the tax liability in cash and therefore, cannot file his GSTR-3B returns for whole of the financial year and files the same only after the cut-off date specified under Section 16 (4), he should be allowed to avail ITC for all the relevant months from April to March while filing the returns since it is only when he files GSTR-3B reeturns, he becomes entitled to the ITC. The law does not permit to file the return unless the entire tax liability in the return is paid. Thus, even if the tax payer wishes to avail the ITC, he is prevented from doing so. Since Section 16 (2) starts with non-obstante clause, it will have an overriding effect on Section 16 (4). In my humble opinion, Section 16 (4) is applicable only in situations where the tax payer has not availed ITC in spite of having filed GSTR-3B return. In that case, he is allowed, as per Section 16 (4), to defer availment till the specified cut off date. In short, provisions of Section 16 (4) are for deferment of availing of ITC after filing of the returns.

Kindly provide views on the above.

[ANUP BHATTACHARJEE]

Credit is taken in the month itself but return in form 3B is filed after 16(4) limitation by paying late fee . In this senerio what will happen sir?

[CA.Tarun Agarwalla]

Yes , section 16(2) and section 16(4) appears to be separate conditions and independent of each other unless and until they contradict each other. Further section 16(4) applicability and validity is separate question altogether. Section 16(4) talk abily due date of return , where claim of credit have been made in the book of accounts and returns were filed belatedly, after the due date wether or not ITC is available? Is the question which yet to be scrutinised.

[KASTURI SETHI]

Query at serial no.22 dated 13.3.22 above has also been asked separately against Issue ID 117857 by the querist..

In this case, the return has been filed late and the department will issue SCN. However, on the basis of timely entry in the books of account ( being statutory records), relief can be hoped through Courts only. There is no other way-out. The querist has Hobson's choice.