ITC on RCM to be paid on import of services

[Shrikanth Parmarthy]

We got summons relating to RCM for the period FY 2018-19 to FY 2023-24 on import of services from a group company outside India. If we pay the RCM liability in FY 2025-26 before issue of SCN are we eligible for claim ITC. Suppose if we receive notice under section 73 or section 74 and then make payment of RCM liability then can we claim ITC.

Can anyone kindly help on this issue.

[YAGAY andSUN]

Regarding your question on Reverse Charge Mechanism (RCM) liability and the eligibility to claim Input Tax Credit (ITC), here's an explanation based on the relevant provisions of the Goods and Services Tax (GST) Act:

1. Paying RCM Liability in FY 2025-26 Before SCN

If you pay the RCM liability for the period FY 2018-19 to FY 2023-24 in FY 2025-26, the following conditions need to be considered:

• Under Section 16(4) of the CGST Act, ITC can only be claimed for a financial year before the due date of filing GST returns for the month of September following the end of the financial year in which the supply was made, or the date of filing the annual return, whichever is earlier.

This means that, in general, you can claim ITC on the RCM payment only if you make the payment before the due date for filing GST returns for September 2025. In your case, if you make the RCM payment in FY 2025-26, it is unlikely that you would be able to claim ITC for such a payment, because it falls outside the allowable period for claiming ITC for the earlier period (FY 2018-19 to FY 2023-24).

2. Receiving Notice under Section 73 or 74, and then Making Payment of RCM Liability

Section 73 and Section 74 deal with the recovery of tax and penalties. Section 73 pertains to cases where the tax is not paid or is short-paid due to an error, whereas Section 74 applies when there is fraud or willful misstatement.

• Section 73(5) allows for ITC to be claimed only after the payment of tax. The ITC claim is possible after the RCM liability has been paid and reflected in the taxpayer's GSTR-3B (or GSTR-2A for purchases made by the taxpayer).
• Section 74 deals with penalties in case of fraud or willful misstatement. Even if you receive a notice under this section, you can still pay the RCM liability before the notice becomes an order, and you can claim ITC on that payment if the payment is made before the due date for filing the return for the relevant period (as mentioned earlier under Section 16(4)).

In simpler terms:

• If you receive a notice under Section 73 or Section 74 and you subsequently pay the RCM liability, you can claim ITC if you do so before the due date of filing GST returns for September following the relevant financial year (i.e., before the due date for filing September 2025 returns for FY 2018-19 to FY 2023-24).

Conclusion:

• Before SCN: If you pay the RCM liability in FY 2025-26 for FY 2018-19 to FY 2023-24, you cannot claim ITC since it would fall outside the period for claiming ITC (September 2025 return filing deadline).
• After receiving a Notice under Section 73 or 74: If you pay the RCM liability after receiving a notice (but before the assessment is finalized), you can claim ITC if you do so before the due date for filing returns for September of the relevant financial year (which would be September 2025 for FY 2018-19 to FY 2023-24).

It’s always advisable to consult with a GST expert or tax advisor for specific guidance and to ensure compliance, especially when it comes to receiving notices and making payments.

[KASTURI SETHI]

As per Section 17 (5) (i) of CGST Act, ITC is not admissible in respect of tax paid under Sections 74, 129 and 130 of CGST Act. 

[UmeshBabu J]

Please refer Circular No 211/5/2024 dated 26th June 2024

[Raam Srinivasan Swaminathan Kalpathi]

Circular 211 is no more applicable. The following sections were amended w.e.f. 01-11-2024 by FA, 2024 viz., Sec. 13(3) which provides:

In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely:––

(a) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or

(b) the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof ²[by the supplier, in cases where invoice is required to be issued by the supplier; or]

³[(c) the date of issue of invoice by the recipient, in cases where invoice is to be issued by the recipient:]

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b) ⁴[or clause (c)], the time of supply shall be the date of entry in the books of account of the recipient of supply:

Sec. 31(3)(f) - which provides a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9 shall ²[, within the period as may be prescribed,] issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both;

Prescribed timeline is provided in Rule 47A as follows made applicable from 01-11-24

Time limit for issuing tax invoice in cases where recipient is required to issue invoice.– Notwithstanding anything contained in rule 47, where an invoice referred to in rule 46 is required to be issued under clause (f) of sub-section (3) of section 31 by a registered person, who is liable to pay tax under sub-section (3) or sub-section (4) of section 9, he shall issue the said invoice within a period of thirty days from the date of receipt of the said supply of goods or services, or both, as the case may be.]

Based on the above, the querist will NOT be able to avail ITC. The above is in complement to what was mentioned by respected Shri. Kasthuri. Prior to 01-11-24 you would be eligible to avail ITC based on Circular 211 and also the fact that Sec.31(3)(f) was not circumscribed by under Sec.13 of the CGST Act, 2017.

[Shilpi Jain]

First is you should contest the notice issued in this regard that demand cannot be u/s 74 since it is a revenue neutral situation (considering you are eligible for full credit).

You should be able to issue self-invoice and take credit of GST paid under RCM now since the time limit for claiming ITC will start from the date of issuing the self invoice. This position does not change even after amendment to section 31(3)(f).

Also once you get an order that s. 74 is not applicable then restriction of credit u/s 17(5) would also not be applicable.

Considering this you may also pay GST under RCM only to the extent that can be demanded u/s 73. 

[Shrikanth Parmarthy]

Dear All, Thank for your valuable support in this regard.

[Yash Shah]

According to Section 16(4) of the CGST Act, No ITC in respect of any invoice or debit note shall be claimed after the earlier of:

1. 30th November, following end of the financial year to which such invoice or debit note pertains; or
2. Furnishing of the relevant annual return.

Moreover, according to Circular No. 211/5/2024-GST, in case supplies received from unregistered supplier, where tax has to be paid by recipient under RCM and invoice need to issue by recipient u/s 31(3)(f) of CGST Act then relevant financial year for calculation of time limit for availment of ITC u/s 16(4) of CGST Act will be the financial year in which the invoice has been issued by the recipient u/s 31(3)(f) of CGST Act, subject to fulfilment of other conditions and restrictions of section 16 & 17 of CGST Act.

Furthermore, the said circular says that in case the recipient issues the invoice after the TOS of the said supply and pays tax accordingly, he will be required to pay interest on such delayed payment of tax. Further, in cases of such delayed issuance of an invoice by the recipient, he may also be liable to penal action under the provisions of Section 122 of the CGST Act.

As per section 31(3)(f), a registered person who is liable to pay tax u/s 9(3) or 9(4) shall issue an invoice in respect of goods or services or both received by him from the unregistered supplier.

In the given case, if the invoice of service received is already issued by the recipient at time of receipt of services then relevant FY for time limit u/s 16(4) shall be FY in which such invoice issued, hence time limit for claiming ITC has been expired and ITC cannot be claimed in that case.

However, if the invoice has not been issued till now, then the recipient is required to issue the invoice as per section 31(3)(f) and in that case relevant FY for calculating the time limit u/s 16(4) will be the FY in which that invoice will issued i.e. FY 2025-26 for which due date for claiming ITC will fall in 30 November 2026. Therefore, in the given case recipient can claim ITC after payment of RCM liability.

Additionally, if SCN has been issued for payment of tax along with interest & penalty, even then ITC can be claimed if the invoice has not been issued till now. Further, if tax has been paid along with interest within 30 days of SCN, then no penalty shall be payable if SCN is issued u/s 73 and if SCN is issued u/s 74 and the tax payer paid tax along with interest & 25% of the penalty amount, then all proceedings shall be deemed to be concluded.