Section 16(5) and 16(6) of CGST Act, 2017-detailed analysis!

The Central Government, based on the advice of the 54^th GST Council meeting, issued a notification on October 8, 2024, stating that if a registered person was given an order demanding payment due to wrongly claiming Input Tax Credit (ITC) under section 16(4) of the GST Act, but the ITC is now allowed under the new rules in section 16(5) and 16(6), they can now apply to correct that order. A feature has been added to the Portal, allowing taxpayers to apply to fix these orders under sections 73/74.

Section 16(5) and 16(6) are added to the CGST Act in the Budget 2024 retrospectively w.e.f. 01^st July, 2017. Let’s understand the details of these newly added sections!

Section 16(4)

Wordings of the section: 

“(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for the supply of goods or services or both after the thirtieth day of November following the end of the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.

Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for September 2018 till the due date of furnishing of the return under the said section for 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 March 2019.”

The following are the key points mentioned in section 16(4):

• ITC of the invoice/ debit note can be availed till 30^th November of the next FY or date of filing the Annual Return, whichever is earlier. After that, it should be lapsed if it remains unclaimed.
• However, for the invoices/ debit notes pertaining to FY 2017-18, ITC claimed till due date of March 2019 due date will be considered valid.

Section 16(5)

This sub-section is added to the CGST Act, 2017 vide Finance (No. 2) Act, 2024, dated: 16.08.2024, w.e.f. 01.07.2017. 

Wordings of the section:

“(5) Notwithstanding anything contained in sub-section (4), in respect of an invoice or debit note for the 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 the input tax credit in any return under section 39 which is filed up to the thirtieth day of November 2021.”

The following are the key points mentioned in section 16(5):

• For the invoices/ debit notes pertaining to FY 2017-18, FY 2018-19, FY 2019-20, and FY 2020-21, ITC claimed till GSTR 3Bs filed up to 30^th November 2021 will be considered valid.
• This provision is retrospectively applicable w.e.f. 01^st July, 2017.
• This means that the persons who received notices u/s 73/ 74 and reversed the ITC for FY 2017-18, FY 2018-19, and FY 2019-20 because it was not claimed upto 30^th November of the next FY or annual return filing of such FYs, whichever was earlier; are now eligible for re-claiming such ITC if the ITC was claimed till 30^th November, 2021.

Section 16(6)

This sub-section is added to the CGST Act, 2017 vide Finance (No. 2) Act, 2024, dated: 16.08.2024, w.e.f. 01.07.2017. 

Wordings of the section:

“(6) Where registration of a registered person is canceled 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 up to the 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.”

The following are the key points mentioned in section 16(6):

• When the registration of the taxpayer is canceled and restored afterward, ITC of the invoice/debit notes which is available for claim on the date of cancellation, can be claimed till later on the following dates:some text
  • GSTR 3Bs filed till 30^th November of the next FY or date of annual return, whichever is earlier
  • Date of filing GSTR 3B for the period of cancellation, if GSTR 3B of such period is filed within 30 days of the revocation of cancellation.

We can understand this with following examples:

• This provision is retrospectively applicable w.e.f. 01^st July, 2017.
• It is to be noted that the persons who received notices u/s 73/ 74 and reversed the ITC for such period in the absence of this amendment, can now reclaim such ITC.

Effect of the amendments

‍The persons who received notices u/s 73/ 74 and reversed the ITC which is now allowed u/s 16(5) and 16(6) shall reclaim such ITC using “Application for rectification of order” which is made available on the GST portal.

‍Conclusion

‍In conclusion, the recent amendments to sections 16(5) and 16(6) of the CGST Act provide significant relief to taxpayers who had previously been denied or had reversed their Input Tax Credit (ITC) due to the expiry of deadlines under section 16(4). With the retrospective applicability of these provisions, businesses that faced ITC challenges for the financial years 2017-18 to 2020-21, or in cases where their GST registration was canceled and later restored, now have the opportunity to reclaim the credit they were rightfully entitled to. The introduction of the "Application for Rectification of Order" feature on the GST portal ensures a streamlined process for taxpayers to correct past errors and recover any due ITC.