WHEN CAN ONE TAKE ITC FOR RCM CASES?

Claiming Input Tax Credit not violating the provisions of GST Act is very much important as wrongly availing ITC would result in interest and penalty implications. At the same time it is also important that the ITC is availed and utilized without delay, failing which working capital may get impacted negatively. Keeping this in mind, this article intends to analyse the time at which one can take ITC in case of inward supplies liable to tax under RCM.

Conditions for availing ITC have been put forth in Section 16(2) of CGST Act. The said section has been reproduced below for easy reference.

'(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––

1. he is in 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;
2. he has received the goods or services or both.

Explanation - For the purposes of this clause, it shall be deemed that the registered person has received the goods, where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

3. subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
4. he has furnished the return under section 39'

Out of the above conditions, it is important to analyse the compliance with condition (a) and (c). As per condition (a) assessee is required to possess the tax invoice debit note issued by the supplier or such other documents as may be prescribed. Said “such other documents” have been prescribed in Rule 36 of CGST Rules. List of documents as per Rule 36 are as follows

1. an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31
2. an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to the payment of tax
3. a debit note issued by a supplier in accordance with the provisions of section 34
4. a bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for the assessment of integrated tax on imports
5. an Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule 54

Sl. No. 2 in the above list refers to the Invoice to be raised when a registered dealer receives any inward supply from Un-registered dealer. Hence, it should be noted that unlike the previous regime, wherein Payment Challan was the document on which credit could have been taken, ITC is allowed based on the URD Purchase Invoice. The invoice would be available in the month in which the purchase or expense is paid. Further, we have to note that the said document would become invalid if the dealer fails to pay the amount of tax subsequently.

Further through condition (c) credit would be allowed only if the tax amount has been paid to the government. However, the said condition is subject to Section 41, which speaks about crediting ITC on provisional basis. Hence, even though the tax, in case on RCM, is paid in the month in which return is being filed (usually the month flowing the one in which expense is incurred) ITC would be available in the month in which it is incurred on provisional basis. The moment the tax is paid with the return filed the credit would get finalised.

Further, we have to note that the GSTR-3B return allows us to set off the ITC of RCM in the same month it is incurred.

Hence, one may come to a conclusion, based on the above discussion, that ITC for RCM cases can be availed in the same month in which inward supply is received.