Clarification on time limit under Section 16(4) of CGST Act, 2017 in respect of RCM supplies received from unregistered persons.

Circular No.: 211/5/2024-GST
Date of Circular: 26th June 2024
Relevant Sections and Rules:

• CGST Act, 2017:
  • Section 16(2)(a): Conditions for availing Input Tax Credit
  • Section 16(4): Time limit to avail ITC
  • Section 31(3)(f): Self-invoicing for RCM from unregistered persons
  • Section 122: Penalty provisions
  • Section 168(1): Power to issue instructions
• CGST Rules, 2017:
  • Rule 36(1)(b): Prescribed documents for availing ITC

Summary of Clarification Provided:

1. Time Limit for Availing ITC on RCM Supplies from Unregistered Persons:
   Where a registered person receives a supply from an unregistered supplier and is required to pay GST under reverse charge, the recipient must issue an invoice under Section 31(3)(f) and pay tax accordingly.

There was ambiguity on which financial year such a self-invoice pertains to for the purpose of Section 16(4), which restricts ITC availability after 30th November of the following financial year.

2. Clarification Issued – Financial Year Is Based on Invoice Date, Not Supply Date:
   It is now clarified that:

• For supplies under RCM from unregistered persons, the relevant financial year for the Section 16(4) ITC time limit is the year in which the self-invoice is issued by the recipient (not the year in which the supply was received).
• This applies only when tax is paid and all other conditions of Section 16 and 17 are fulfilled.

3. Interest and Penalty Implications for Delay:
   If the recipient:

• Issues the invoice late (after the time of supply) and
• Pays tax under RCM late,
  then they must:
• Pay interest on the delayed tax payment.
• May be subject to penalty under Section 122 of the CGST Act.

Source: Circular No.: 211/5/2024-GST