ITC Eligibility under RCM, Goods and Services Tax - GST

[KALLESHAMURTHY MURTHY]

A registered taxpayer has received services from an unregistered person during FY 2018-19 on which he is liable to pay tax (IGST) under RCM but no invoice was issued at the time of service received and no tax was paid. After being observed by the department in 2023, the RTP raised the invoice and paid the IGST along with interest, and at the same time availed ITC on the tax so paid under RCM on the contention that the date of invoice raised doesn’t violate Sec. 16(4). Is the RTP eligible for the ITC?

Posts / Replies

[Pradeep Reddy]

1. Presently, there is no bar in the CGST Act in availing credit in this situation unless the show cause notice has been issued under Section 74 demanding payment of GST. Typically GST authorities would litigate this at the adjudication and first appellate levels.

2. To put rest such situations the CGST Act has been amended in the 2024 budget, prescribing a timeline for issuance of self-invoice in case of RCM supplies. Thereby limiting the timeline availing for such credit based on the date of self-invoice or timeline to issue it with Section 16 (4) of the CGST Act.

[KASTURI SETHI]

To qualify only one parameter i.e. date of invoice is not sufficient. Other parameters are also to be qualified. The ingredients i.e. suppression of facts etc. of Section 74 of CGST Act read with Section 20 of IGST Act are clearly present in this case. Hence hit by Section 17(5)(i) of CGST Act.

By paying tax along with interest implies that the offence stands admitted by the party.

 

[RaamSrinivasan Kalpathi]

I think the querist is referring to audit paras which were accepted by the querist's client.  This is a sort of consultation note submitted by the department after completion of audit but before issue of SCN.  Therefore the RTP is definitely eligible to avail ITC.  In this regard to clarify this, department has recently issued Circular 211 dt 26-Jun-2024.  We had a similar issue and ITC was allowed without demur by the department.  Thanks

[KASTURI SETHI]

Not litigation-free. No freedom from Section 16 and 17 of CGST Act.

[KALLESHAMURTHY MURTHY]

7-09-2024.

Thanks to all the Learned Experts for the reply.

Sri SR Kalpathi Sir, has rightly guessed the issue raised.

The issue was first raised by scrutiny u/s 61. Now, AA has taken up u/s 74 with other issues. It is the point that the RTP has not discharged the tax (IGST) under RCM when the service was received. After the scrutiny notice, the tax was discharged by raising a self-invoice and claiming ITC. The time of supply of service is the main point here. The department is demanding to repay ITC so taken with interest and penalty in the context that after a long time of supply of service received, raising the invoice in a subsequent year is a violation of Rule-50 and served as a fake invoice and the ITC taken on RCM paid is incorrect.

As per the views of Sri Pradeep Reddy Sir and the Circular reference mentioned by Sri SR Kalpathi Ji, RTP has to get a remedy accordingly.

However, from the point of query, the opinion of Sri Kasturi Sethi Ji appears to be correct that it is not free from litigation.

[Amit Agrawal]

With due respect, I most humbly disagree with the categorical statement made in earlier post above that 'The ingredients i.e. suppression of facts etc. of Section 74 of CGST Act read with Section 20 of IGST Act are clearly present in this case. Hence hit by Section 17(5)(i) of CGST Act.'.

It is well settled position of law that 'charge of suppression of facts with intention to evade taxes' (i.e. to invoke extended period of limitation to issue SCN or to levy equal penalty u/s 74 or both) does not stand a legal scrutiny when tax-payer himself was eligible for tax-credit if those taxes were indeed paid by him in the past (i.e. when same became due as payable under law) under reverse charge mechanism.

In support on said well settled legal position, we quote following rulings:

A. Larger Bench Decision (5 member Bench) in cease of JAY YUHSHIN LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NEW DELHI as reported in 2000 (7) TMI 105 - CEGAT, COURT NO. I, NEW DELHI:

"Original adjudicating authority failed to appreciate Order in Para 13(c) of above-said order in proper perspective which reads as follows: With particular reference to Modvat scheme (which has occasioned this reference) it has to be shown that the Revenue neutral situation comes about in relation to the credit available to the assessee himself and not by way of availability of credit to the buyer of the assessee's manufactured goods'

B. M/S BRITISH AIRWAYS VERSUS COMMISSIONER (ADJN), CENTRAL EXCISE, DELHI, as reported in 2014 (6) TMI 626 - CESTAT NEW DELHI (LB) wherein it was held as follows:

“32. As regards the question of longer limitation period under Proviso to Section 73(1) of the Finance Act, 1944, the same would not be available to the Department, as no intention to contravene the Provisions of Finance Act, 1994 and of the rules made there under can be attributed to the Appellant for the reason that even if they are required to pay service tax on the service, in question, provided by CRS/GDS Companies, the entire service tax paid would be immediately available to them as Cenvat Credit and collection of service tax from the Appellant would be a revenue neutral exercise. A Larger Bench of the Tribunal in case of JAY YUHSHIN LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NEW DELHI as reported in 2000 (7) TMI 105 - CEGAT, COURT NO. I, NEW DELHI, has held that in such circumstances where revenue neutral situation comes about in relation to the credit available to the assessee himself of the duty paid by him and not by the way of availability of credit to the buyer of the assessee's manufactured goods [para 13(b) of the judgment], longer limitation period under Proviso to Section 11A (1) of Central Excise Act, 1994 would not be applicable. The ratio of this judgment is squarely applicable to the facts of this case, as the Provisions of Section 11A (1) of Central Excise Act, 1944 are in pari-materia with the Provisions of section 73 (1) of the Finance Act, 1994. Since in this case, intention to evade the tax is absent, the penalty under section 78 of Finance Act, 1994 would not be attracted

………………………"

C. JAIN IRRIGATION SYSTEMS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NASHIK, as reported in 2015 (9) TMI 160 - CESTAT MUMBAI.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[KASTURI SETHI]

Only time will tell.

[KASTURI SETHI]

In continuation of my view at serial no.7 dated 08.9.2024, I add that what is legally correct is in the lap of time. 

[Amit Agrawal]

Time-limit prescribed u/s 16(4) to take ITC to does not apply against 'invoices raised  u/s 31(3)(f)' while paying subject tax-liability under RCM in my view. Kindly refer to discussion we had under Issue-ID: 118838 bearing subject-line as 'ITC for the past period'. 

During above discussion on TMI, it can be seen that I have also shared my alternate submission that 'Delay in issuance of invoice u/s 31(3)(f) cannot be used as reason to deny ITC using restrictions u/s 16(4). Section 16(4) is concerned about 'Date of invoice / debit note' and NOT the timing of underlying supply. The words used in Section 16(4) (i.e. following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier) needs to be seen in this context'. And I gave my reasons backing this alternate submission during above-stated discussion. 

And this alternate submission of mine is now accepted by Revenue-Dept. as can be seen from Para 2.7 from Circular No. 211/5/2024-GST dated the 26^th June, 2024, wherein CBIC, in exercise of its powers conferred under section 168(1) of the CGST Act, has clarified as follows:

"2.7 Accordingly, it is clarified that in cases of supplies received from unregistered suppliers, where tax has to be paid by the recipient under reverse charge mechanism (RCM) and where invoice is to be issued by the recipient of the supplies in accordance with section 31 (3) (f) of CGST Act, the relevant financial year for calculation of time limit for availment of input tax credit under the provisions of section 16 (4) of CGST Act will be the financial year in which the invoice has been issued by the recipient under section 31 (3) (f) of CGST Act, subject to payment of tax on the said supply by the recipient and fulfilment of other conditions and restrictions of section 16 and 17 of CGST Act. In case, the recipient issues the invoice after the time of supply of the said supply and pays tax accordingly, he will be required to pay interest on such delayed payment of tax. Further, in cases of such delayed issuance of invoice by the recipient, he may also be liable to penal action under the provisions of Section 122 of CGST Act."

Facts of your case (about raising invoice u/s 31(3)(f) in year 2023 and taking ITC there-against) perfectly gets covered from above clarification issued by CBIC. And in my earlier post at Sr. No. 6 above).

Moreover, I have already shared my view why such ITC cannot be legally blocked using Section 17(5)(i) of CGST Act, 2017 considering well-settled legal position in this regard.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Padmanathan KV]

In addition to the observation made by Ld friend Amit Ji in above posts, I also disagree with the categorical statement that "By paying tax along with interest implies that the offence stands admitted by the party."

Mere payment of tax along with interest, does not mean that ingredients for invoking 74 are admitted by the taxable person. Unless the Department can clearly make out a case that fraud, or wilful misstatement, or suppression of fact with intend to evade tax is present in a case (the Dept cannot do so in this case, due to reasons cited by Amit Ji in earlier post), mere payment of tax and interest will not be sufficient to invoke section 74.

As for eminent threat of litigation, one cannot forego eligible ITC of significant amount simply because it will be contested by the Department.   

[Shilpi Jain]

There is also a clarification in this respect. Invoice can be issued now and credit can be  availed.

[KASTURI SETHI]

Sh. Padmanathan KV Ji,

I welcome your disagreement with my views on any issue from the core of my heart but it should be with original thoughts. I do not hesitate to learn from youngsters. 

[k.lakshmipati rao]

Dear Shilpi Madam,

Refer your remarks -"There is also a clarification in this respect. Invoice can be issued now and credit can be  availed".

May I request for your further guidance as to how the Challan amount to be adjusted against DRC-07 liability and ITC claim in GSTR-3B against self-invoice issued now, simultaneously.

[Gayatri Khairatkar]

Respected Experts,

We have a similar issue, the RTP paid RCM with interest and penalty as per the audit observations given by the officer but in the final audit report, the officer has mentioned this payment as paid u/s 74. If it is mentioned as paid u/s 74, we cannot claim ITC of the same as per the limitations set in Section 17(5). Is this contention right or wrong?

Thank you in anticipation.

[k.lakshmipati rao]

Dear all,

With further reference to the remarks of Shri Amit Agarwal at serial no. 9 dated 08.9.2024, a detailed clarification in this respect [from Para 2.7 of Circular No. 211/5/2024-GST dated the 26th of June, 2024], and clarifications from the other two experts at serial no.10 & 11 as well, while agreeing their suggestions, I would like to give below the new reporting of RCM liability and claim for eligible ITC in GSTR-3B from August 2024 onwards.

Scenario – as of July 2024 GSTR-3B:

RCM Liability paid [voluntary or Audit findings] for the past period and reported in table 3.1(d) of GSTR-3B.

ITC Claim:

Enter the positive balance of unclaimed (above) ITC as opening balance for August 2024 in the RCM ITC statement and claim in Table in 4A(3) of GSTR-3B.

The deadline to report the opening balances in GST portal is 31st October 2024.