ITC on RCM to be paid on import of services, Goods and Services Tax - GST

[Shrikanth Parmarthy]

We got summons relating to RCM for the period FY 2018-19 to FY 2023-24 on import of services from a group company outside India. If we pay the RCM liability in FY 2025-26 before issue of SCN are we eligible for claim ITC. Suppose if we receive notice under section 73 or section 74 and then make payment of RCM liability then can we claim ITC.

Can anyone kindly help on this issue.

Posts / Replies

[YAGAY andSUN]

Regarding your question on Reverse Charge Mechanism (RCM) liability and the eligibility to claim Input Tax Credit (ITC), here's an explanation based on the relevant provisions of the Goods and Services Tax (GST) Act:

1. Paying RCM Liability in FY 2025-26 Before SCN

If you pay the RCM liability for the period FY 2018-19 to FY 2023-24 in FY 2025-26, the following conditions need to be considered:

• Under Section 16(4) of the CGST Act, ITC can only be claimed for a financial year before the due date of filing GST returns for the month of September following the end of the financial year in which the supply was made, or the date of filing the annual return, whichever is earlier.

  This means that, in general, you can claim ITC on the RCM payment only if you make the payment before the due date for filing GST returns for September 2025. In your case, if you make the RCM payment in FY 2025-26, it is unlikely that you would be able to claim ITC for such a payment, because it falls outside the allowable period for claiming ITC for the earlier period (FY 2018-19 to FY 2023-24).

2. Receiving Notice under Section 73 or 74, and then Making Payment of RCM Liability

Section 73 and Section 74 deal with the recovery of tax and penalties. Section 73 pertains to cases where the tax is not paid or is short-paid due to an error, whereas Section 74 applies when there is fraud or willful misstatement.

• Section 73(5) allows for ITC to be claimed only after the payment of tax. The ITC claim is possible after the RCM liability has been paid and reflected in the taxpayer's GSTR-3B (or GSTR-2A for purchases made by the taxpayer).

• Section 74 deals with penalties in case of fraud or willful misstatement. Even if you receive a notice under this section, you can still pay the RCM liability before the notice becomes an order, and you can claim ITC on that payment if the payment is made before the due date for filing the return for the relevant period (as mentioned earlier under Section 16(4)).

In simpler terms:

• If you receive a notice under Section 73 or Section 74 and you subsequently pay the RCM liability, you can claim ITC if you do so before the due date of filing GST returns for September following the relevant financial year (i.e., before the due date for filing September 2025 returns for FY 2018-19 to FY 2023-24).

Conclusion:

• Before SCN: If you pay the RCM liability in FY 2025-26 for FY 2018-19 to FY 2023-24, you cannot claim ITC since it would fall outside the period for claiming ITC (September 2025 return filing deadline).

• After receiving a Notice under Section 73 or 74: If you pay the RCM liability after receiving a notice (but before the assessment is finalized), you can claim ITC if you do so before the due date for filing returns for September of the relevant financial year (which would be September 2025 for FY 2018-19 to FY 2023-24).

It’s always advisable to consult with a GST expert or tax advisor for specific guidance and to ensure compliance, especially when it comes to receiving notices and making payments.

[KASTURI SETHI]

As per Section 17 (5) (i) of CGST Act, ITC is not admissible   in respect of  tax paid  under Sections 74, 129 and 130 of  CGST Act. 

[UmeshBabu J]

Please refer Circular No 211/5/2024 dated 26th June 2024