ITC Eligibility on delayed payment of RCM Tax for services taken from registered supplier

[Shailesh Chechani]

Dear Sir/Ma'am,

If a taxpayer has taken the RCM service from the registered supplier in FY 2018-19 but he comes to know in that he didn't paid the tax on such RCM services yet & decided to make the payment in June-25 along with applicable interest & penalty.

The query is whether the recipient is eligible to avail the ITC on such delayed payment of RCM tax as the benefit of Circular number-211/2024 regarding issuance of self-invoice is not applicable in this case as supplier is registered under GST Act.

[YAGAY andSUN]

ITC Eligibility on delayed payment of RCM Tax for services taken from registered supplier.

You're correct in noting that CBIC Circular No. 211/3/2024-GST (dated 26th June 2024), which provides relaxation for self-invoicing under reverse charge in certain cases, does not apply here, since the supplier is registered, and the circular specifically benefits cases involving unregistered suppliers.

Now, addressing your core query:

Can the recipient avail ITC on RCM tax paid in FY 2018-19, but paid in June 2025?

Yes, ITC on RCM can still be availed, provided certain conditions are met, even though the tax is being paid late. However, some crucial points must be considered.

🔍 Legal Framework:

1. Section 16(4) of CGST Act, 2017 (prior to amendment by Finance Act, 2022) stated:

"A registered person shall not be entitled to take ITC in respect of any invoice or debit note after the due date of furnishing the return under section 39 for the month of September following the end of the financial year to which such invoice pertains, or furnishing of the relevant annual return, whichever is earlier."

However, RCM is an exception in some ways, explained below.

2. Important Judicial and Departmental Clarifications:
   • ITC eligibility in case of RCM is based on the date of payment of tax, not the invoice date.
   • Several AARs and departmental clarifications (e.g., FAQs and CBIC clarifications) support the view that Section 16(4) does not strictly apply to RCM cases, because:
     • The ITC arises only after payment of tax, as per Section 16(2)(c).
     • No ITC can be claimed until tax is paid under RCM.
   • Therefore, RCM ITC becomes eligible only after actual payment of the tax, not merely on receipt of the service.

Caveats and Conditions:

• The recipient must ensure:
  • RCM liability is paid in cash through the electronic cash ledger.
  • Proper self-invoice (as per RCM requirements) was issued at the time of receipt of service, or reconstructed now if missed.
  • Interest and penalty are paid voluntarily to avoid litigation.
  • Claim of ITC is supported with proper documentation in the return where RCM liability is paid.

Risk Consideration:

While jurisprudence supports the claim of ITC on delayed RCM payment, some department officers may object, citing Section 16(4) timelines. However, in past legal interpretations and clarifications:

• It has been consistently observed that RCM credit is not hit by Section 16(4) because there is no valid ITC claim until tax is actually paid.

If challenged, the taxpayer may need to support the position with:

• Proof of tax payment under RCM.
• Copy of invoice and/or reconstructed self-invoice.
• Filing return with RCM liability and ITC claim in the same tax period (June 2025, in your case).

Summary Answer:

Yes, the recipient is eligible to claim ITC on RCM tax paid in June 2025 for FY 2018-19 services, provided the tax is paid now along with interest and penalty, and proper documentation is in place. Section 16(4) is not a barrier in this case because ITC eligibility under RCM arises only after tax payment.

 

[Sadanand Bulbule]

While welcoming the reply of Yagay & Sun, you can pay tax under RCM for the year 2018-19 during the month of June 2025 with applicable interest via GSTR-3B or DRC-03. The time limit prescribed under Section 16[4] does not come in the way of claiming ITC on payment of tax under RCM.

[Shilpi Jain]

If its a registered supplier then taking credit now will be highly disputable.

AI Summary

Tax Credit Claim Possible for Delayed Reverse Charge Mechanism Payment Under Specific Compliance Conditions in FY 2018-19 A taxpayer who took RCM services from a registered supplier in FY 2018-19 and plans to pay delayed tax in June 2025 can potentially claim Input Tax Credit (ITC), subject to specific conditions. Eligibility depends on paying tax with interest, maintaining proper documentation, and following RCM payment protocols. While legally supported, the claim may face potential departmental scrutiny.