RCM GST ITC Paid

[Madhavan iyengar]

In Respect to tax payable under Reverse Charge Mechanism if the services pertain to FY 17-18 and Invoice is also of FY 2017-18

However the Company has made the payment of RCM in July 20

Is Company eligible to take credit of the aforesaid RCM ITC paid in July 20

IS this ITC hit by the provisions of sec 16(4)

[Rajagopalan Ranganathan]

Sir,

Since you have paid the tax under RCM in July 2020 you would have paid the same along with interest. You have also to make a self invoice.Since this invoice is raised in July 2020 and will be included in your GSTR-3B return for July 2020 for which the last date will be 20.08.2020 you are eligible to take ITC>

[KASTURI SETHI]

As per the query, the invoice in question has been raised by the supplier during the year 2017-18. Hence no question of self-invoice. As per Rule 36 of CGST Rules, an invoice is the basic document for availment of ITC. Hence in my view ITC is hit by Section 16(4) of CGST Act. Payment of tax is must for avaliment of ITC whether under RCM or FCM.

[Mahir S]

The input tax credit on the tax that is paid under RCM will be available only after making payment.

Hence it will be available in the month in which the RCM has been admitted and paid and filed the necessary return as envisaged in Sec.16 of CGST Act.

[Alkesh Jani]

Shri

On going through the query and reply given by our experts, it can be said that the matter is not litigation free if ITC is availed.

However, before applying Section 16(4) we need to pass through Section 16(2) of the Act, whereby, it states that one cannot take ITC unless tax is paid, in case of RCM, tax is to be paid by recipient, as if he is the supplier, merely paying the value of the goods or service will not qualify for ITC (refer 3rd proviso to Section 16(2). In erstwhile Service tax, CENVAT can be taken, in case of RCM, when tax is paid.

Further, GSTR-3B is not the return under Section 39 (as held by High Court), and till date GSTR-2 and GSTR-3 are in abeyance.

Therefore, in view of above, I am of the view that if the amount is considerable, take ITC and prepare for litigation and if amount is bearable book as loss.

Thanks

[KASTURI SETHI]

Dear Alkesh Jani Ji,

"Prepare for litigation". It is good to make the querist aware but the querists visit this forum to avoid rigours of litigation.

[Alkesh Jani]

Dear Kasturiji Sir,

Thanks for your comments, I do understand that querist visit this forum to avoid litigation which may take place in future. I gave the clear view that if the amount is considerable one must be prepared mentally and also with sufficient ground to contest the issue and if not book as a loss.

Further, the query raised in this forum or anywhere else, it is general in nature and one cannot give proper advice unless related documents or book of accounts are perused. Even the best advice given, but how it will be viewed by the department in future, only time can say. As you say that we lay foundation for querist and it is him/her to decide, so I expressed my views and also ground is provided, if querist wish to contest.

Hope my above words will reach you with its appropriate meaning.

Thanks,

With Due Regards

[KASTURI SETHI]

Dear Alkesh Jani Ji,

I fully agree with you. You have caught me !! I am of the view that Pandora's box will be unleashed as and when audit of any unit for three years (from 1.7.17 onwards) is conducted by the Internal audit wing of the department as well as by the audit wing of CAG. At present the department is not working with its full strength due to coronavirus.

At present Govt.'s as well as ours' topmost priority is that Coronavirus must go for ever. Life has been derailed from every aspect due to Covid-19 since 22nd March, 2020..

AI Summary

Input tax credit availability under reverse charge subject to statutory payment, invoicing and reporting conditions. ITC under the Reverse Charge Mechanism is generally available only after the recipient pays the tax, issues any required self-invoice, and reports the payment in the return for the month of discharge; however, a contrary view holds that where the supplier's invoice dates from an earlier year, Section 16(4) and documentary/timing requirements may preclude claiming ITC, exposing taxpayers to audit and potential litigation if credit is taken without satisfying payment, invoicing and reporting conditions.