GST Input can be claimed only if Invoice is uploaded by party from 1st April 2021 as Section 16(2)(aa) inserted by Budget 2021

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Finance Minister Nirmala Sitharaman proposed many new measures in the Budget 2021 to prop up the declining economy amid the Covid-19 pandemic and boost spending across sectors. Budget 2021 focused on the seven pillars for reviving the economy – Health and Wellbeing, Physical and Financial Capital and Infrastructure, Inclusive Development for Aspirational India, Reinvigorating Human Capital, Innovation and R&D, and Minimum Government Maximum Governance. Several direct taxes and indirect taxes amendments were also proposed. One such provision inserted, was clause (aa) to Section 16(2) of the CGST Act, which will be applicable from April 1, 2020, as per the Finance Bill

What are the provisions of Section 16(2)?

According to Section 16(2) of CGST, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless:

he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed
he has received the goods or services or both
the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
he has furnished the return under section 39

Section 16(2)(aa) inserted by Budget 2021

A new clause (aa) to section 16(2) of the CGST Act is sought to be inserted to provide that input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note.

With the insertion of Clause(aa) in Section 16(2) of the CGST Act by the Finance Act, 2021, now it is clear that ITC claimed on the basis of invoices which are not uploaded by the supplier in his GSTR-1, is required to be reversed and tax/interest/penalty has to be paid under section 73(5) of the CGST Act.

Now, the supplier is supposed to show the details of such invoice or debit note in GSTR – 1, the ITC would be eligible to the recipient. The communication clause was already mentioned in section 37(1) of the CGST Act, however, now it has become the condition to avail ITC.

Such details will be communicated to the recipient of supply, which can be seen in user services > Communication between taxpayers. Recipient is required to accept the same. In case of discrepancy, a taxpayer can communicate with the recipient for issues like payment related issues or any other issue.

How can assessee’s Avoid Tax, Interest and Penalty?

Assessee’s cannot do anything except paying tax/ interest/ penalty or filing appeal to the appellate authority or recover tax amount from supplier, if they have availed ITC up-to F.Y. 2018-19 on the basis of invoices which were not uploaded by the supplier in his GSTR-1 (only if this section will be inserted retrospectively).

But one can take actions on invoices which are related to F.Y. 2019-20 and up-to this month of F.Y. 2020-21. To Avoid Extra Payment in F.Y. 2019-20 and 2020-21 one can:

Reconcile ITC as claimed in GSTR-3B and as populated in GSTR-2A of relevant F.Y. and contact suppliers to upload invoices in their GSTR-1, so that they will be eligible to avail ITC as per Section 16(2)(aa)
If payment is already made to the supplier for invoice which is not uploaded by him in his GSTR-1 and he is not ready to upload that invoice in GSTR-1 of upcoming months, one should deduct the amount of GST from payment to be made to him in future so that they can recover the amount of ITC from the supplier.

However, this amendment was not as per the basic principle of law which was formed for seamless flow of credit. Therefore, section 16(2)(aa) of the CGST Act and its similar Rule 36(4) of the CGST Rules are in contravention of GST Act as well as the Indian Constitution, but taxpayers have to accept these provisions and have to pay tax/ interest/ penalty as per the amended provisions of law.

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