Revisiting Section 16(4) of CGST Act : From Rigid Deadlines to Retrospective Relief—CA. Pranay S. Jajodia

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The Tax Publishers GST--Input Tax Credit Revisiting Section 16(4) of CGST Act : From Rigid Deadlines to Retrospective Relief CA. Pranay S. Jajodia Through this article, the learned author seeks to examine the legal framework, practical intricacies, legislative developments, judicial interpretations and procedural developments relating to section 16(4) of the Central Goods and Services Tax Act, 2017. Recognizing that a comprehensive evaluation of all dimensions of ITC governance would be beyond the scope of a single article, this discussion selectively focuses on the most critical aspects, including retrospective relief measures, rectification mechanisms, key judicial pronouncements, and practical considerations for businesses navigating this time-bound compliance framework. An analysis of evolving jurisprudence, legislative reforms, and practical strategies for safeguarding Input Tax Credit. 1. The framework of input tax credit and the role of Section 16(4) The introduction of the Goods and Services Tax (GST) brought with it the promise of seamless credit flow. By subsuming multiple indirect taxes and eliminating the cascading effect of taxes, the concept of Input Tax Credit (ITC) became the very fabric that held the GST system together. However, this entitlement is neither unconditional nor unlimited. It comes tethered with eligibility conditions under section 16(1) and procedural limitations under section 16(2) and 16(4) of the CGST Act. While most conditions in section 16 pertain to supplier compliance, invoice documentation, and actual receipt of goods or services, section 16(4) introduces a firm outer time limit-the red line beyond which no credit can be claimed, even if all other conditions are met. As it stands today, ITC must be availed by the 30th of November of the subsequent financial year or the date of filing the annual return, whichever is earlier. At a glance, this might appear as a harmless compliance timeline-akin to a statutory reporting date. However, the rigidity of this provision, its irreversible consequences and its lack of relaxation for bona fide cases have made it one of the most frequently litigated and most feared sections under GST. And while the legislative intent is rooted in maintaining transactional discipline, in practice, section 16(4) has become a source of tension between substance and procedure. 2. How this clause operates in practice ? Let's consider a typical mid-sized business that receives hundreds of vendors' invoices every month. Despite having strong systems, some invoices occasionally slip through due to human oversight. Suppose one such invoice dated March 2023 was duly reported by the vendor in their GSTR-1 on time, and the corresponding ITC was properly reflecting in the business's GSTR-2B of March 2023. However, due to the non-availability of the physical invoice at that time, the accounts team missed recording the purchase and consequently did not claim the ITC in GSTR-3B within the prescribed timeline. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

GST--Input Tax Credit

Revisiting Section 16(4) of CGST Act : From Rigid Deadlines to Retrospective Relief

CA. Pranay S. Jajodia

Through this article, the learned author seeks to examine the legal framework, practical intricacies, legislative developments, judicial interpretations and procedural developments relating to section 16(4) of the Central Goods and Services Tax Act, 2017. Recognizing that a comprehensive evaluation of all dimensions of ITC governance would be beyond the scope of a single article, this discussion selectively focuses on the most critical aspects, including retrospective relief measures, rectification mechanisms, key judicial pronouncements, and practical considerations for businesses navigating this time-bound compliance framework.

An analysis of evolving jurisprudence, legislative reforms, and practical strategies for safeguarding Input Tax Credit.

1. The framework of input tax credit and the role of Section 16(4)

The introduction of the Goods and Services Tax (GST) brought with it the promise of seamless credit flow. By subsuming multiple indirect taxes and eliminating the cascading effect of taxes, the concept of Input Tax Credit (ITC) became the very fabric that held the GST system together. However, this entitlement is neither unconditional nor unlimited. It comes tethered with eligibility conditions under section 16(1) and procedural limitations under section 16(2) and 16(4) of the CGST Act.

While most conditions in section 16 pertain to supplier compliance, invoice documentation, and actual receipt of goods or services, section 16(4) introduces a firm outer time limit-the red line beyond which no credit can be claimed, even if all other conditions are met. As it stands today, ITC must be availed by the 30th of November of the subsequent financial year or the date of filing the annual return, whichever is earlier.

At a glance, this might appear as a harmless compliance timeline-akin to a statutory reporting date. However, the rigidity of this provision, its irreversible consequences and its lack of relaxation for bona fide cases have made it one of the most frequently litigated and most feared sections under GST. And while the legislative intent is rooted in maintaining transactional discipline, in practice, section 16(4) has become a source of tension between substance and procedure.

2. How this clause operates in practice ?

Let's consider a typical mid-sized business that receives hundreds of vendors' invoices every month. Despite having strong systems, some invoices occasionally slip through due to human oversight.

Suppose one such invoice dated March 2023 was duly reported by the vendor in their GSTR-1 on time, and the corresponding ITC was properly reflecting in the business's GSTR-2B of March 2023. However, due to the non-availability of the physical invoice at that time, the accounts team missed recording the purchase and consequently did not claim the ITC in GSTR-3B within the prescribed timeline.