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GST Payable under RCM - when is credit due?

SEPTEMBER 12, 2017

By Preety Parik, CA

Issue -

Whether credit of Tax payable under Reverse Charge Mechanismis available in same month of its liability?


Tax Period is July 2017 -
Tax Payable under RCM for the month of July is Rs.5 Lacs. 
Tax Liability on Outward Supplies for the month of July is Rs.8 Lacs. 
RCM Tax payment of Rs.5lacs is made in August2017 on furnishing of GSTR-3 for July.

Can the supplier claim credit of RCM Tax of Rs.5 lacs against Liability of 8lacs in July? OR Will credit of RCM Tax of 5lacs be available for set off against August liability?

The writer's View- The supplier can claim credit of RCM Tax of Rs.5 lacs against July Liability of 8 lacs.

i) As per the definition of Input Tax in Sec.2(62), Input Tax includes Tax Payable under Reverse Charge Basis under CGST Act, SGST Act, IGST Act, UT GST Act. Tax Payable under RCM is eligible ITC and not restricted to Tax Paid under RCM.

ii) The scheme of Return Filing of inward supplies is such that the supplier has to submit the details of taxable inward supplies from unregistered persons in GSTR-2, at invoice level with respect to Taxable Value, Tax Amount and also identify whether he is eligible to claim credit of Tax. This Tax amount i.e Tax payable under RCM gets auto populated in GSTR-3 and forms part of Output Tax Liability. The net effect is that the supplier is paying tax under RCM and claiming credit of this tax paid under RCM in the same month .

iii) The scheme of Input Tax Credit governed by the provisions of Sec.16 of the CGST Act does not differentiate between credit of tax charged by the supplier or credit of tax paid under RCM by the recipient. The important condition of claim of Credit of Input Tax is subject to payment of tax to the Government. In case of Tax Charged by the supplier, claim of credit is subject to payment of Tax by the supplier. In case of Tax under RCM, claim of credit is subject to payment of Tax by the registered recipient.

iv) As per Sec.41, Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger. Thus the claim of credit of Tax payable under RCM in Form GSTR-2 should be allowed on provisional basis and by virtue of condition laid in Sec.16(2)(c) this provisional credit of tax under RCM shall be subject to actual payment of Tax. The claim of Credit of Tax under RCM shall be made in GSTR-2 on or before 15th day after the close of the Tax period and the Tax liability on RCM shall be discharged in GSTR-3 on or before 20th day after the close of the Tax Period.

v) Rule 36 of the CGST Rules prescribes Documentary requirements and conditions for claiming Input Tax Credit. Rule 36(1)prescribes the documents which shall form the basis for claiming Input Tax Credit. As per section 31(3)(f), the registered recipient, paying Tax under RCM, has to issue Invoice in respect of Goods/ Services received by him from an unregistered supplier. According to sub clause (b) to Rule 36(1) Invoice issued in accordance with provisions of Sec.31(3)(f) of the Act, subject to Payment of Tax is eligible document for claiming credit of Input Tax. It is clear that by virtue of Rule 36(1) Invoice raised by the recipient is the eligible document for claiming credit of Tax paid under RCM. But the rule also imposes condition for payment of Tax. But can the rule be interpreted to mean that claim of credit of Tax under RCM can be made only after payment of Tax? Nonetheless it is important to note that in case of tax charged by the supplier, the Tax invoice issued by the supplier is the eligible document for claiming credit. The claim of credit by the recipient, in GSTR-2, is on provisional basis and gets finalised after matching of returns which is again subject to payment of tax by the supplier. On the same lines, one can argue that in case of Tax under RCM, invoice issued under Section 31(3)(f) is the eligible document for claiming credit. The credit of Tax payable under RCM can be claimed by the recipient, in GSTR-2 on provisional basis and the same gets finalised after the payment of tax by the recipient.

vi) Though the GST Twitter handle of the Government claims that their tweets do not have any legal validity, however one should appreciate that it has tweeted on one such query that "ITC of RCM of July paid in August can be used for payment of liability of July".

In the Finance Act, 1994, Credit of RCM was available only after payment of tax. On this ground,a contrary view as to Tax Paid under RCM in GST shall be available for credit only after the payment of tax also emerges.

It is only appropriate that a clarification comes from the tax authorities on when to claim the credit of tax under RCM so that it can settle the issue once and for all.

(The views expressed are strictly personal.)


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