Article on Notification No. 22/2024 - Input Tax Credit (ITC)

Introduction

On 8th October 2024, Notification No. 22/2024 – Central Tax was issued, introducing a special rectification procedure for taxpayers who wrongly availed Input Tax Credit (ITC) in contravention of Section 16(4) of the Central Goods and Services Tax (CGST) Act, 2017. This notification is designed to provide relief to those taxpayers who can now claim ITC under the provisions of Sections 16(5) or 16(6) and streamline the process of correcting past ITC errors without having to undergo lengthy appeals or legal battles.

Key Provisions of Notification No. 22/2024

1. Eligibility for Rectification: The notification applies to taxpayers who have been issued an order under Sections 73, 74, 107, or 108 of the CGST Act confirming the demand for wrongly availed ITC due to a contravention of Section 16(4). However, the taxpayer can only apply for rectification if:

     - The ITC is now available for claim under Sections 16(5) or 16(6)

    - No appeal has been filed against the order

2. Time Limit for Application: The application for rectification must be filed electronically on the GST portal within six months of the issuance of this notification, i.e., by 7th April 2025.

3. Procedure for Rectification: The taxpayer needs to submit the following details electronically:

• GSTIN, Legal Name, and Trade Name of the taxpayer.

• Reference number and date of the order under Sections 73, 74, 107, or 108.

• Detailed information about the wrongly availed ITC, the applicable financial years, and the tax amounts, interest, and penalties as per the original order.

• Justification for why the ITC is now claimable under Sections 16(5) or 16(6).

•  All relevant details must be submitted in the proforma provided in Annexure A of the notification.

4. Role of the Tax Officer: The tax officer who issued the original order will review the application. They must:

• Make a decision within three months from the date of receipt of the rectification application.

• If the application is approved, issue a rectified order.

• Update the rectified order summary in FORM GST DRC-08 (for orders under Sections 73 and 74) or FORM GST APL-04 (for orders under Sections 107 and 108).

• Follow the principles of natural justice if the rectification adversely affects the taxpayer, meaning that the taxpayer should be given an opportunity to present their case before the final decision.

What to Do From the Taxpayer’s Side

1. Review Eligibility for Rectification:  Taxpayers must review their past ITC claims to ensure they meet the eligibility criteria under Sections 16(5) or 16(6).
If an order has already been issued under Sections 73, 74, 107, or 108, but the ITC is now claimable under the new provisions, the taxpayer should prepare for the rectification process.

2. Filing the Application: Taxpayers must file the rectification application on the GST portal within the stipulated six-month window (by 7th April 2025).
   - All required information in Annexure A must be provided accurately, with clear documentation of the financial years in question, the amounts of ITC, and the reasons for eligibility under the revised provisions.

3. Corrective Actions if Appeal is Filed: If an appeal has already been filed under Section 107 or 108, the taxpayer cannot use this special rectification procedure. However, they may choose to withdraw the appeal to become eligible for rectification.
   - The decision to withdraw the appeal should be made after consulting with a tax professional, keeping in mind the merits of the case and potential outcomes.

5. Maintain Proper Documentation: Taxpayers should keep comprehensive documentation, including invoices, debit notes, and other supporting evidence, to justify their ITC claims under Sections 16(5) or 16(6).

6.  Ensure Compliance with Timelines: Timely submission of the rectification application is crucial. Missing the six-month deadline will result in the taxpayer losing the opportunity to rectify the wrongly availed ITC under this special procedure.

Precautions to Be Taken by Taxpayers

1. Ensure ITC Eligibility: Before filing the rectification application, taxpayers must ensure that their ITC claim is now valid under Section 16(5) or 16(6). Filing an application without proper eligibility could lead to rejection or further scrutiny.

2. Submit Accurate and Complete Information: The proforma (Annexure A) must be filled out carefully. Any discrepancies or incomplete information may result in the rejection of the application or the imposition of further liabilities

3. Timely Filing: Taxpayers must strictly adhere to the six-month deadline. Missing this window means forfeiting the opportunity to rectify the order through this special procedure.

4. Consider Withdrawing Appeals: If the taxpayer is currently in the appeal process under Section 107 or 108, they should carefully consider whether it is worth withdrawing the appeal to avail the rectification opportunity under Notification No. 22/2024. This decision should be based on the merits of the case and professional advice.

5. Maintain Proper Records: Taxpayers must keep detailed records of all transactions, invoices, and related documents. These will be crucial in supporting the rectification application and defending against any future inquiries from tax authorities.

Conclusion

Notification No. 22/2024 introduces a well-structured and practical approach for taxpayers to rectify past ITC errors. It offers significant relief for those who wrongly availed ITC under Section 16(4) but now find themselves eligible under Sections 16(5) or 16(6). By following the proper procedure, taxpayers can avoid lengthy litigation, reduce penalties, and correct their tax records. However, strict attention must be paid to eligibility, timelines, and accurate documentation to ensure a smooth rectification process. 

For taxpayers and tax officers alike, this notification promotes a more efficient GST compliance environment, encouraging voluntary corrections and minimizing disputes.