CBIC clarifies Time Limit for Issuance of Invoice for RCM Supplies from Unregistered Persons u/s 16(4) of GST Act and availment of ITC [Read Circular]

The Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance issued a Circular No. 211/5/2024-GST, providing clarifications regarding the time limit for availing Input Tax Credit (ITC) under the Central Goods and Services Tax (CGST) Act, 2017.

The circular addresses the applicability of Section 16(4) of the Goods and Services Tax Act concerning supplies received from unregistered persons under the reverse charge mechanism (RCM).

The need for clarification arose from numerous representations made by trade and industry stakeholders. These representations highlighted confusion around the time limit specified under Section 16(4) of the CGST Act for claiming ITC on taxes paid under RCM for supplies from unregistered persons. The primary concern was whether the relevant financial year for ITC availment should be the year in which the supply was received or the year in which the recipient issued the invoice.

The CBIC has now clarified that the financial year relevant for ITC availment under Section 16(4) is the year in which the recipient issues the invoice, not the year the supply was received. This clarification aims to standardise the interpretation and implementation of the CGST Act across all field formations, thereby reducing potential litigation and compliance issues.

As per Section 31(3)(f) of the CGST Act, when a registered recipient receives supplies from an unregistered supplier and is liable to pay tax under RCM, the recipient must issue the invoice. ITC can only be availed when the recipient holds a tax invoice or other prescribed tax paying document

The circular noted that, “A combined reading of the above provisions leads to a conclusion that as ITC can be availed by the recipient only on the basis of invoice or debit note or other duty paying document, and as in case of RCM supplies received by the recipient from unregistered supplier, invoice has to be issued by the recipient himself, the relevant financial year, to which invoice pertains, for the purpose of time limit for availment of ITC under section 16(4) of CGST Act in such cases shall be the financial year of issuance of such invoice only. In cases, where the recipient issues the said 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.”

For supplies under RCM, the relevant financial year for ITC availment is the year in which the recipient issues the invoice. If the recipient issues the invoice after the supply and pays tax subsequently, interest on delayed payment is applicable.

It was thus 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, it was added that, “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 Central Goods and Services Tax Act.”

To Read the full text of the Order CLICK HERE

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