Is the rule to claim ITC within a deadline justifiable?

Since the GST law was introduced in 2017, it has brought the concept of ‘one nation, one tax’ into the economy. The impact has been on all sectors equally by reducing compliance burdens and promoting ease of doing business. The law also tries to provide seamless credit of input tax, but there have been changes for utilisation of Input Tax Credit (ITC) that some businesses find to be an impediment. To judge these limitations, we must first understand the laws of this.

Current laws for the ITC

• A person registered under GST will be allowed to claim input credit only if all the following conditions are met:

1. They must be registered under GST
2. The purchase must be for business purposes
3. They must possess the tax invoice
4. They should have received the goods or services or both
5. The supplier must have filed monthly/quarterly GSTR-3B
6. The supplier must have paid output tax
7. Depreciation cannot be claimed on the ITC component
8. Payment is to be made within 180 days.

• Some businesses are ineligible to claim credit under section 17.
• Sales invoices are furnished in form GSTR-1. Such invoices furnished by the supplier will reflect in real-time in GSTR-2A and GSTR-2B of the buyer. The credit items that satisfy the above conditions will be eligible for claims in the particular period.

The time limit for claiming ITC

• The time limit for claiming ITC of a financial year is the earlier of:
  • The due date for filing returns for September of the succeeding financial year.
  • Date of filing the annual return for that financial year.
• After the above date, such credit will be reflected in GSTR-2B under the “ITC Not Available” section.
• Invoices and debit notes of a particular financial year filed after the above deadline in GSTR-1 by the supplier will also not be available for claim.

Benefits and drawbacks of these rules

Such a rule can have benefited by providing a cushion to businesses. This has been elaborated below:

• It gives the business ample time to claim the credit if the same has not been claimed on time.
• If the supplier fails to furnish the return on time, ample time is given to the customer to communicate with him so that the invoice/debit is filed before the deadline date.
• This also gives time and space to make amendments to invoices/debit notes.

Some drawbacks can occur in the following situations:

• There is no mechanism for claiming any credit past the deadline.
• In cases where the supplier has not filed their GST returns on time at all, or the returns were filed after the said deadline, the credit cannot be claimed by the person. This is a major drawback of this rule since the customer would suffer due to the supplier’s default.
• Amendments to invoices or debit notes of the previous financial year cannot be made after the deadline.
• In the case of M/S. The petitioner alleged that the recipient could not be made liable for GST liability due to D.Y. Beathel Enterprises vs. The State Tax Officer (Data Cell), (Investigation wing) Commercial Tax Buildings, Tirunelveli, the petitioner the default by the supplier. In this case, the court held that the recipient could not be demanded without carrying out proceedings to recover the tax from the supplier. Although this is a ruling favouring legitimate taxpayers, having to monitor compliances by every supplier will prove to be a difficult task.
• Considering the above drawbacks, there aren’t any mechanisms to help businesses seek relief from the above situation.

The deadline for claiming ITC for a particular person may be beneficial in certain cases since it gives a cushion period until which the registered person can claim the input tax credit. However, there may be special cases where the rule can be a deterrent to the utilisation of credit by a business, and businesses will not be able to seek relief from these situations.

The GST law, along with its amendments and timely notifications, aims to give opportunities to businesses for seamless credit utilisation. The lack of aid in these special situations is something that the government can delve into to protect the interests of diligent taxpayers.