JULY 24, 2018

By Vishwanath K, Advocate

TO bring-in an upper time limit for taking the Input tax credit by a registered person, a statutory time limit has been provided vide Section 16(4) of the Central Goods and Services Tax Act, 2017 (CGST Act). Such time limit can be said to be a reasonable restriction or condition imposed by CGST Act with the object it seeks to achieve.When the entire chapter of Input tax credit is read harmoniously, it can be safely said the availment of input tax credit is nothing but a concession or conditional right which accrues to the registered person on fulfillment of certain conditions.

However,standalone reading or construction of section 16(4) of CGST Act seems to create certain uncertainties or vagueness which requires resolution.

Let's find out what does Section 16(4) provides…

Sec. 16(4)of the CGST Act provides that

"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"

A simple reading of the above infers that maximum time limit for availing the credit of GST on any invoice or debit note is earliest of:

• the due date for furnishing September month's return following the end of the financial year to which such invoice or debit note pertains (Could be October 20th -To be notified) OR

• furnishing the relevant annual return (Could be 31 st Dec- To be notified)

Where are the ambiguities?

Point 1: Only invoice or debit is covered within its purview.

Stepping back a little, Section 16(2) of CGST Act which postulates the conditions for taking credit--- clearly and unambiguously---provides that no input tax credit can be availed unless the registered person is in the 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 of CGST Rules clearly provides that input tax credit can be availed based on Bill of entry or such other tax paying documents which includes challan for payment of IGST at the time of imports which can be used for import assessments.

However, Section 16(4) of CGST Act fails to consider bill of entry or any other tax paying documents (on which GST Credits can be availed under the GST regime) as one of the documents within its ambit for the purpose of phased time limit.

If the aforesaid omission is "intentional", does this mean that the there is no time limit for availing the input tax credit for import transaction and the ‘reasonable' restriction applies only for domestic / indigenous supplies? Will this not be tax discrimination as far as credit availment is concerned (Whether or not for the same person)?

Point 2: Meaning of the word ‘pertains'?

To apply the time limit, it is essential that there must be a commencement date or period. However, Section 16(4) of CGST Act lays downs the closing date or period and such closing date has to be reckoned not later than the date or period to which the invoice or debit note pertains.

Therefore, the difficulty which arises is to ascertain to which period or date, does the invoice or debit note pertains? Further, the word ‘pertain' has not been defined under the CGST Act or rules made thereunder and an ordinary dictionary meaning suggest that the word "pertain" means "related to" or "applicable to".

Forward charge cases

In case where GST is payable on forward charge basis, the date of invoice or debit note issued by the supplier can be considered for the purpose of reckoning the time limit for availing the input tax credit given that the language in Section 16(4) seems to lay more emphasis on "Invoice or debit note" rather than

• The period to which the supply relates or

• The date of receipt of goods or services or

• The date of payment to such supplier or

• The date of payment of tax by the supplier

In any case, it is the onus of the supplier to issue GST invoice or debit note as per Section 31 or Section 34 of CGST Act read with time of supply provisions.

One can reasonably argue that the date of invoice or debit note may not be the only factor to consider the time limit but the period to which such input tax credit relates has to be looked into and if such an argument is advanced, then the period to which such supply relates or the period in which payment of tax has been made by the supplier also gains significance.

Unlike the erstwhile CENVAT Credit Rules, 2004 (CCR) where the time limit for availment was considered as 'one year from the invoice date', the phased time limit under CGST Act seems to hinder the business practices by restricting the availment of credit for March 2018 dated invoices to a maximum of 20th October 2018 (say) vis-à-vis July 2017 dated invoices which also ends with the same time limit.

It is possible that availment of credit may be deferred for many business reasons such as quality checks, invoice processing, tax not being paid by the suppliers etc. Therefore, in a given financial year, the procurements in the months of January to March will have a lesser time for availment of credit when compared to the earlier procurements say in the months of April or May.

Reverse charge cases

In case where GST is payable under reverse charge basis, in terms of Rule 36 (1)(b) of CGST Rules, the input tax credit can be availed only on the basis of a self-invoice as generated in terms of Section 31(3)(f) of CGST Act, subject to the condition of payment of GST.

In case where supply of services attracts reverse charge, the time of supply can extend up to 60 days from the date of invoice (i.e. commercial invoice) of the supplier in case of non-associated enterprises and date of book entries in case of associated enterprises.

It is quite possible that there could be a timing difference between commercial invoice of the supplier (where not registered) and GST self-invoice raised by the registered recipient for the purposes of discharge of GST and consequential availment of input tax credit.

In case where the commercial invoice is dated on or before 31.03.2018 but the self-invoice is generated on or after 01.04.2018, the time limit for availment of credit commences from the date of self-invoice instead from the date of commercial invoice of the supplier. In such cases the time limit for availment can go beyond the time limit vis-à-vis financial year 2017-18, if the commercial invoice date is taken as the basis. However, GST law recognizes the self-invoice as the basis,which is nothing but a tax invoice for the purpose of computing the maximum time limit.

Parting remarks…

An equitable time limit which provides equal treatment for all inward supplies (irrespective whether imported or otherwise) with a fixed time limit starting from the date of invoice or debit note seems to be more reasonable instead of a phased time limit which hamper business conditions and decisions at the year end.

Needless to say,the time limit for availment of input tax credit on capital goods must be relaxed (like erstwhile CCR where there was no cap) as the condition of availing the credit in respect of all the capital goods at one-go within the limited time frame may not be practically possible given various business conditions and scenarios.

The Department of Revenue which has made available the proposed amendments in CGST Act, 2017, IGST Act, 2017 and the GST (Compensation to States) Act, 2017 in the public domain for feedback and comments which was open till 15.07.2018 was too short a time wherein many such feedbacks or comments could not be put-forth.

A suitable trade friendly amendment to the aforesaid section seems to be the need of the hour.

(The author is Principal Associate, Lakshmikumaran & Sridharan, Attorneys, Bangalore and the views expressed are strictly personal.)