Decoding Section 16(4) – ITC under GST – From Naked Perspective

In the recent times, the CGST Department has been aggressively issuing notices and advisory related to section 16(4) for late filing of GSTR 3B.The Notice and advisory sent by the department is related to Reversing the ITC claimed in GSTR 3B. Now let’s see what 16(4) is all about:

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 due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

However, the other relevant sections i.e. Section 16(2), Section 37, Section 38 and Section 39 is completely ignored for the purpose of allowing the ITC.

Section 16(2) states that:

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. There are some exceptions where registered person shall be entitled to the credit of input tax. These are as follows:

(a) 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;

(b) 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;

(c) 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 utilization of input tax credit admissible in respect of the said supply; and

(d) He has furnished the return under section 39

Hence, this section puts emphasis on the eligibility on claiming the ITC. The main condition of this section that the dealer must have furnished the return under section 39.

Section 39 contains the following provisions of furnishing of Returns:

• The dealer has furnished the Return U/s 39(1) after due date but with duly discharging the Late Fees Liability as per section 47 of CGST Act.
• Further the section 39(9) states:

Subject to the provisions of sections 37 and 38, if any registered person after furnishing a return under:

– sub-section (1) or 

-sub-section (2) or

– sub-section (3) or 

-sub-section (4) or 

-sub-section (5) 

discovers any omission or incorrect particulars therein, other than as a result of scrutiny, audit, inspection or enforcement activity by the tax authorities, he shall rectify such omission or incorrect particulars in the return to be furnished for the month or quarter during which such omission or incorrect particulars are noticed, subject to payment of interest under this Act.

In simple words, this section clarifies that if dealer discovers any error omission or incorrect particulars identified in the returns filed U/s 39, shall rectify in the returns of the month in which such omission or incorrect particulars are noticed.

The proviso to section 39(9) states:

• Provided that no such rectification of any omission or incorrect particulars shall be allowed after the due date for furnishing of return for the month of September or second quarter following the end of the financial year, or the actual date of furnishing of relevant annual return, whichever is earlier.
• Thus, this section specifically states that no Omission or incorrect particulars shall be rectified, after due date of filing the return of September month.
• Now, when we closely consider section 16(4) and section 39(9), it states the exact same requirement as provided in the proviso to section 39(9). This ITC criteria i.e. section 16(4) should be read with section 39 and the criteria of availing ITC after due date of filing the return for the month of September should be restricted to the Errors, rectifications and omissions discovered.