ITC availed in contravention of provision of Sec 16(4)

[AKSHAT AGARWAL]

Seeking experts guidance on the forum.

In one of the case, assessee have delayed filed their GSTR-3B for the month of March-21 by 21-12-2021 as well annual return has also been filed much after on 26-04-2024. Now Deptt. have confirmed the demand on account of ITC wrongly availed in terms of provisions of section 16(4) of CGST Act, 2017. Amount of ITC disallowed is substantial.

My question is whether any relief is available on any ground or ITC needs to be reversed by now.

Thanks

[Sadanand Bulbule]

The entitlement of ITC is based on the strict frame of time schedule under Section 16[4] of the CGST Act. Since you have crossed the said time frame, the entitlement of ITC stands disqualified. Further the claim of ITC is not a fundamental right, but a benefit provided upon valid compliance.

[Sadanand Bulbule]

Also refer the following:

2025 (3) TMI 1395 - SC ORDER (LB) - THE UNION OF INDIA & ORS. VERSUS BRIJ SYSTEMS LTD & ORS.

 

 

 

[YAGAY andSUN]

In this scenario, where the ITC has been disallowed due to the delay in filing GSTR-3B and the annual return, there are specific provisions in the CGST Act, 2017 that will determine whether the ITC needs to be reversed and if any relief is available.

Key Provisions to Consider:

1. Section 16(4) of the CGST Act, 2017: This section provides the deadline for claiming ITC on any supply made during a particular financial year. It states that ITC can be claimed by the taxpayer only until the due date for filing the GSTR-3B for the month of September following the end of the financial year or the date of filing the annual return for the relevant financial year, whichever is earlier.
   • In your case, the financial year 2020-21 corresponds to the period for which the ITC was claimed.
   • The due date for filing the GSTR-3B for March 2021 (for the FY 2020-21) was 31st October 2021.
   • Since the GSTR-3B was filed on 21st December 2021, it was filed well after the due date for claiming ITC for FY 2020-21. As per Section 16(4), ITC cannot be claimed after this due date, and hence, the ITC claim for FY 2020-21 would likely be disallowed by the department.
2. Annual Return (GSTR-9): The annual return for FY 2020-21 was filed on 26th April 2024, which is well after the September 2021 deadline for filing the annual return. The late filing of the annual return does not extend the deadline for claiming ITC under Section 16(4), which already passed on 31st October 2021.

Is there any relief or remedy available?

As per the provisions of the CGST Act and the interpretation of Section 16(4), once the due date for claiming ITC has passed, the claim of ITC is not allowed for that period. Here are some points to consider:

1. No Extension Beyond the Deadline:
   • As per Section 16(4), the ITC must be claimed by the due date of filing GSTR-3B for September following the relevant financial year. Even if the annual return is filed late, the ITC claim is not permitted beyond the September return deadline of the following financial year.
2. Possibility of a Rectification:
   • If the ITC was wrongly availed in the GSTR-3B (for FY 2020-21) and the department has confirmed the demand, the only option would be to reverse the ITC in the subsequent period. However, this reversal will not make the ITC claim valid as the deadline under Section 16(4) has already passed. The reversal will only be to comply with the department's demand.
3. Section 73 or 74 (Notice under Recovery):
   • If a demand notice has been issued under Section 73 or Section 74 (for reasons of short payment or incorrect availing of ITC), the assessee can still make the payment of the tax (along with interest and penalty) and appeal to the department for a reduction in penalty (if applicable). However, ITC reversal remains necessary because the deadline for claiming ITC has passed under Section 16(4).
4. Possibility of Legal Recourse:
   • If you believe there are valid grounds for extending the time limit for claiming ITC, such as force majeure or some other extraordinary circumstances, you may file an appeal or seek relief before the GST Appellate Authority. However, such relief is rare, and the department typically upholds the time limits for ITC claims set under Section 16(4).

Conclusion:

• ITC Reversal: Based on the provisions of Section 16(4), the ITC that was wrongly availed due to the late filing of GSTR-3B and the annual return must be reversed, as the time limit for claiming ITC has passed.
• Relief: There is limited relief available in this case, as the statute is clear about the deadline for claiming ITC. However, you could seek a reduction in penalty or interest if you pay the tax liability in response to the demand notice, but the reversal of ITC would still be necessary.
• Next Steps: You should proceed with the reversal of ITC and also consider filing an appeal or submitting a representation to the authorities if you believe there are additional grounds for relief.

Given the complexity of the situation and the substantial amount involved, it would be prudent to consult a tax professional or a GST expert to ensure that the process is handled correctly and to explore any additional options for mitigation.

[Shilpi Jain]

At least if you had availed the credit in GSTR-3B by 30-11-2021 you would have been covered u/s 16(5) and credit would have been allowed.

If the amount is substantial you could consider consulting a professional to see if there is any other way out.

AI Summary

Tax Credit Blocked: Late GSTR-3B Filing Leads to Comprehensive Input Tax Credit Disallowance Under Section 16(4) A taxpayer delayed filing GSTR-3B and annual return for March 2021, resulting in disallowance of input tax credit (ITC) under Section 16(4) of CGST Act. The substantial ITC claim was rejected due to missed statutory deadlines. Limited relief options exist, primarily involving ITC reversal, potential penalty reduction, and possible appeal, though legal recourse appears challenging given strict statutory interpretation.