Time Limit for availing Input Tax Credit on Debit Notes

01/10/2021 06:35 PM By ROHIT GUPTA

What is the last date of availing ITC on debit Notes? 

A seemingly very simple topic, yet one of the most controversial topics of the month is the time limit for availing Input Tax Credit on Debit Notes. The GST Department has come up with a circular this month on 20th September to give clarity on this issue. In this article , we will discuss various issues relating to Input Tax Credit on Debit Notes.

 

When a debit note is issued?

A debit note is issued by the registered person who has supplied goods or services or both, if he founds that the taxable value or tax charged in the tax invoice is less than the taxable value of such supply or tax payable in respect of such supply.

 

What is the time limit to issue a debit note?

There is no such time limit in the GST law to issue a debit note.

 

Whether the Input Tax Credit will be available on such debit notes?

Section 16 of the CGST Act, 2017 allows Input Tax Credit on tax charged on the debit notes.

 

What is the time limit for availing Input Tax Credit on Debit Notes?

The main crux of this article is to discuss the answer to this question, what is the time limit for availing Input Tax Credit on Debit Notes. To understand the legal position we need to understand what was the earlier provision and what was the amendment made through Finance Act, 2020, what does the advance ruling says on this topic and what does the Circular No. 160/16/2021 dated 20th September 2021 says on this topic.

 

Position before amendment through Finance Act, 2020

Prior to the amendment through Finance Act, 2020, Section 16(4) of the CGST Act, 2017 provided that a registered person shall not be entitled to take ITC in respect of any invoice or debit note for the 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 the financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

The above provision linked ITC of both invoice and debit note to the date of corresponding invoice.

In other words, the section provides that ITC on the debit note can be claimed till earlier of the following events:

  • the date of furnishing of annual return or

  • the return for the month of September

for the next financial year to which the corresponding invoice of such debit note is related.

Position after the amendment by Finance Act, 2020

Clause 118 of the Finance Act, 2020 omitted the words "invoice relating to such" in the Section 16(4) of CGST Act, 2017. The memorandum explaining the provisions stated that Section 16(4) is being amended to delink the date of issuance of debit note from the date of issuance of the underlying invoice for purpose of availing input tax credit.

After amendment the section provides that ITC on the debit note can be claimed till earlier of the following events:

  • the date of furnishing of annual return or

  • the return for the month of September

for the next financial year to which the debit note is related.

 

It can be concluded that ITC on the debit notes which are issued in the following financial years of the corresponding invoice shall be available as per the date of the debit note. The corresponding invoice shall not be taken into consideration for the purpose of determining the last date of claiming ITC on debit notes.

The above amendment was brought into effect from 1st January 2021.

 

Advance Ruling

 

Recently the Hon’ble Gujarat Authority for Advance Ruling in the case of M/s I-TECH PLAST INDIA PVT. LTD. GUJ/GAAR/R/10/2021 dated 20th January 2021 has denied the claim of ITC on debit notes issued in FY 2020-21 which were towards the transaction of FY 2018-19, due to the following reasons:

  1. The Gujarat AAR held that irrespective of the fact that wordings ‘invoice relating to such’ is connected to ‘debit note’, the fact remains that a debit note is always connected to the invoice. The omission of the ‘invoice relating to such’ does not mean that the relation of the debit note with the invoice has been cut off.

  2. The intention of the government was not to disconnect the debit note from the original invoice so that the debit note gains an independent existence so as to entitle the applicant to claim Input Tax Credit in relation to CGST-SGST charged separately in debit notes issued by the supplier in following financial years.

  3. The amendment does not imply that the year in which the debit note was issued will be considered as the ‘financial year’ for the purpose of amended Section 16(4). If a debit note is issued in a different financial year than that of the financial year in which the original invoice was issued, the financial year to which the debit note pertains will always be considered to be the year in which the original invoice was issued.

  4. It was held that the financial year to which a debit note pertains, is invariably the financial year in which the original invoice (related to the said debit note) was issued.

This advance ruling was in complete contradiction of the Budget Memorandum which clearly states that the intent behind the amendment is ‘to delink the date of issuance of debit note from the date of issuance of the underlying invoice for purposes of availing input tax credit’.

 

Circular No. 160/16/2021-GST dated 20th September 2021

 

To clarify the legal position and to avoid any future litigation, the Government on 20th September 2021 issued Circular No. 160/16/2021-GST which clarifies that:

a) w.e.f. 01.01.2021, in case of debit notes, the date of issuance of debit note (not the date of underlying invoice) shall determine the relevant financial year for the purpose of section 16(4) of the CGST Act.

b) The availment of ITC on debit notes in respect of amended provision shall be applicable from 01.01.2021. Accordingly, for availment of ITC on or after 01.01.2021, in respect of debit notes issued either prior to or after 01.01.2021, the eligibility for availment of ITC will be governed by the amended provision of section 16(4), whereas any ITC availed prior to 01.01.2021, in respect of debit notes, shall be governed under the provisions of section 16(4), as it existed before the said amendment on 01.01.2021.

 

Illustration 1. A debit note dated 07.07.2021 is issued in respect of the original invoice dated 16.03.2021. As the invoice pertains to F.Y. 2020- 21, the relevant financial year for availment of ITC in respect of the said invoice in terms of section 16(4) of the CGST shall be 2020-21. However, as the debit note has been issued in FY 2021-22, the relevant financial year for availment of ITC in respect of the said debit note shall be 2021-22 in terms of amended provision of section 16(4) of the CGST Act.

Illustration 2. A debit note has been issued on 10.11.2020 in respect of an invoice dated 15.07.2019. As per amended provision of section 16(4), the relevant financial year for availment of input tax credit on the said debit note, on or after 01.01.2021, will be FY 2020-21 and accordingly, the registered person can avail ITC on the same till due date of furnishing of FORM GSTR-3B for the month of September, 2021 or furnishing of the annual return for FY 2020-21, whichever is earlier.

 

Conclusion

If any ITC is availed on or after 1.1.2021 on the debit notes issued either prior to or after 1.1.2021, credit will be available as per the date of debit note. But, if ITC is availed prior to 1.1.2021 on the debit notes issued either prior to or after 1.1.2021, credit will be available as per the date of corresponding invoice.

 

We are in the month of October, in which we will be filing returns for the month of September 2021, hurry up, since this is the last chance to take credits on invoices and debit notes issued in FY 2020-21, in case you have missed it. Get your GSTR2A reconciled with your books of accounts and file your GSTR3B for the month of September diligently. In case you need any help, we will be happy to help you.
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