Compliance Requirements under the Act in Accordance with the Rules

Section 16:

Eligibility & Conditions

Every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. The amount shall be credited to the electronic credit ledger of such person, subject to:

• • Conditions and restrictions as prescribed
  • Manner specified in section 49

Mandatory Conditions

No registered person shall be entitled to credit of any input tax unless ALL the following conditions are satisfied:

(a) Possession of Valid Documents

He is in possession of:

• • Tax invoice issued by a supplier registered under this Act, OR
  • Debit note issued by a supplier registered under this Act, OR
  • Such other tax paying documents as may be prescribed

(aa) Supplier’s Furnishing of Details

The details of the invoice or debit note referred to in clause (a) has been:

• • • Furnished by the supplier in the statement of outward supplies, AND
    • Communicated to the recipient of such invoice or debit note in the manner specified under section 37

(b) Receipt of Goods or Services

The registered person has received the goods or services or both.

Explanation – Deemed Receipt:

(i) For Goods: 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.

(ii) For Services: It shall be deemed that the registered person has received the services where the services are provided by the supplier to any person on the direction of and on account of such registered person.

(ba) Non-Restriction of Input Tax Credit

The details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted.

(c) Actual Payment of Tax

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

(d) Return Filing

He has furnished the return under section 39.

Receipt in Lots or Instalments

Where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment.

Reversal for Non-Payment

Where a recipient fails to pay to the supplier of goods or services or both (other than supplies on which tax is payable on reverse charge basis) the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier:

Consequence:

• An amount equal to the input tax credit availed by the recipient shall be paid by him
• Along with interest payable under section 50
• In such manner as may be prescribed

Re-availment on Payment

The recipient shall be entitled to avail of the credit of input tax on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon.

Depreciation Restriction

Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income Tax Act, 1961, the input tax credit on the said tax component shall not be allowed.

Time Limit for Claiming Credit

A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the earlier of:

(a) Thirtieth day of November following the end of financial year to which such invoice or debit note pertains, OR

(b) Furnishing of the relevant annual return

The registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under section 39 for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.

Extended Time Limit for Specific Years

Notwithstanding anything contained in sub-section (4), in respect of an invoice or debit note for supply of goods or services or both pertaining to the Financial Years 2017-18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take input tax credit in any return under section 39 which is filed upto the thirtieth day of November, 2021.

Credits During Registration Cancellation and Revival

Where registration of a registered person is cancelled under section 29 and subsequently the cancellation of registration is revoked by any order (either under section 30 or pursuant to any order made by the Appellate Authority or the Appellate Tribunal or court), and where availment of input tax credit in respect of an invoice or debit note was not restricted under sub-section (4) on the date of order of cancellation of registration:

The said person shall be entitled to take the input tax credit in respect of such invoice or debit note for supply of goods or services or both, in a return under section 39:

(i) Filed upto thirtieth day of November following the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier; OR

(ii) For the period from the date of cancellation of registration or the effective date of cancellation of registration (as the case may be) till the date of order of revocation of cancellation of registration, where such return is filed within thirty days from the date of order of revocation of cancellation of registration,

Whichever is later.

Rule 37: Reversal of Input Tax Credit

Furnishing Details of Reversal

A registered person who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to sub-section (2) of section 16 [i.e., 180 days], shall furnish the following details:

Details to Furnish:

• Details of such supply
• Amount of value not paid
• Amount of input tax credit availed of proportionate to such amount not paid to the supplier

Where to Furnish: In FORM GSTR-2

When to Furnish: For the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice. The value of supplies made without consideration as specified in Schedule I of the Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.

Addition to Output Tax Liability

The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax liability of the registered person for the month in which the details are furnished.

Interest Liability

The registered person shall be liable to pay interest at the rate notified under sub-section (1) of section 50 for the period:

Starting: From the date of availing credit on such supplies

Ending: Till the date when the amount added to the output tax liability (as mentioned in sub-rule 2) is paid

Exception for Re-availment

The time limit specified in sub-section (4) of section 16 shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier.

Integrated Operation of Section 16 And Rule 37

5.1 Timeline of Compliance

Stage 1: Availment of Credit

• • Registered person receives supply with tax invoice from registered supplier
  • Supplier uploads details in statement of outward supplies (section 37)
  • Details communicated to recipient
  • Recipient receives goods/services
  • Supplier pays tax to Government
  • Recipient files return under section 39
  • Input tax credit is taken and credited to electronic credit ledger

Stage 2: Payment Within 180 Days

• • If payment (value + tax) made to supplier within 180 days from invoice date
  • Credit is validly retained
  • No further action required

Stage 3: Non-Payment Beyond 180 Days

• • If payment not made within 180 days from invoice date
  • Obligation to reverse credit arises

Stage 4: Reversal Process (As per Rule 37)

• • In the month immediately following 180 days:
    • Furnish details in FORM GSTR-2
    • Add reversed amount to output tax liability
    • Pay interest from date of credit availment to date of payment
    • Interest rate: As notified under section 50(1)

Stage 5: Subsequent Payment and Re-availment

• • When payment (value + tax) is made to supplier
  • Entitled to re-avail the input tax credit (third proviso to section 16(2))
  • Can be claimed even after time limit under section 16(4) (as per Rule 37(4))
  • Claim in return for the month of payment
  • Interest paid earlier is not refundable

• • Start Date: Date of availing credit (date of filing return in which credit claimed)
  • End Date: Date of payment of reversed amount

Compliance Obligations

For Recipients

1. 1. Maintain possession of valid tax invoices or debit notes
   2. Verify supplier has uploaded details in outward supply statement
   3. Ensure actual receipt of goods or services
   4. Verify tax has been paid by supplier to Government
   5. File returns under section 39
   6. Monitor 180-day payment deadline from invoice date
   7. Reverse credit in month following 180 days if payment not made
   8. Pay applicable interest on reversal
   9. Re-avail credit in return for month when payment is made
   10. Claim credit within time limits under sub-section (4)

For Suppliers

1. 1. Issue valid tax invoices to registered recipients
   2. Upload invoice details in statement of outward supplies under section 37
   3. Ensure details are communicated to recipients
   4. Pay tax to Government (cash or through ITC)
   5. Maintain records of payments received from recipients