GST was implemented on 1 July 2017 and has been undergoing constant changes. The authorities are constantly striving to simply the law to enable ease of doing business in India and to clarify any ambiguity that pertains in the legislations.
The GST council recently held a meeting on 17th September 2021 and issued various clarificatory circulars following the meeting on 20th September 2021. This note particularly address the clarification as addressed in circular no. 160/16/2021-GST dated 20th September 2021 on the following-
- The relevant date for determining the financial year in respect of underlying invoice or debit note for the purpose of availing ITC under Section 16(4).
- The applicability od Sec 16(4) for availing credit in respect of debit notes issued on or after 1 January 2021.
- Possession of physical Tax Invoice during movement of goods from an E-Invoice perspective.
- Restriction on refund of unutilized ITC, in case of export of goods which are subject to Nil rate of Export Duty in accordance with the first proviso to Section 54(3).
The below paragraphs bring out the issues and the clarifications provided in the circular.
AMENDMENT OF SECTION 16(4) VIDE FINANCE ACT 2020
Section 16 of the CGST Act, 2017 specifies the provisions on Input Tax Credit. Sub-section 4 specifies the timelines for entitlement of Input Tax Credit with respect to the Invoices or debit notes. The same is extracted as:
“A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for 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 financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.”
Clause 120 of the Finance Act 2020 amended Section 16(4) that the words “invoice relating to such” was to be omitted with effect from 01.01.2021. Memorandum explaining the Finance Bill of 2020 set out that the intention of the amendment was 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.
With respect to the above-mentioned amendment, clarifications were sought to understand the relevant date for the purpose of section 16(4) i.e., the date of underlying invoice or date of issuance of Debit Note to be considered for determining the Financial Year and also the effect of this amendment on debit notes issued where ITC has been availed prior to 01.01.2021.
The circular clarified that with effect from 01.01.2021 where ITC is being availed on a debit note, on or after 01.01.2021, the date of issuance of debit note shall determine the relevant financial year for the purpose of section 16(4) of the CGST Act and the same shall not be linked to the date of underlying invoice i.e., regardless of the financial year which the underlying invoice pertains to, the date of issuance of debit note shall be considered for determining the financial year.
It has further been clarified that the amended provisions shall apply to debit notes issued for which the ITC is availed on or after 01.01.2021 and for the debit notes where ITC has been availed prior to 01.01.2021 the provisions shall apply as it existed prior to the amendment i.e., the date of underlying invoice shall be considered for determining the financial year.
While the provisions of Section 16 states that ITC maybe availed on the strength of an Invoice or a debit note, it is pertinent to note that as per Section 31 which specifies provisions as to what constitutes a Tax Invoice and Section 34 which specifies provisions for a debit note read with the relevant CGST Rules, a debit note can be issued only in relation to an underlying invoice raised for a supply and cannot be issued on a standalone basis. A debit note at best can only be considered as a supplementary invoice. Therefore, the delinking of a debit note from the underlying invoice must be interpreted only from a point of view of determining the financial year to which the debit note would pertain to for the purpose of availing ITC. Further, ITC cannot be availed only on the strength of a debit note.
The circular provides Illustrations for ease of understanding:
- 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.
- A debit note has been issued on 10.11.2020 in respect 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.
REQUIREMENT OF CARRYING PHYSICAL INVOICE COPY DURING MOVEMENT OF GOODS FROM E-INVOICE PERSPECTIVE
Rule 138A of the CGST Rules, 2017 as amended, specifies the Documents and devices to be carried by a person-in-charge of a conveyance. The documents are mandated to be carried during movement of goods. Rule 138A states that:
“(1) The person in charge of a conveyance shall carry—
- the invoice or bill of supply or delivery challan, as the case may be, and
- a copy of the e-way bill in physical form or the e-way bill number in electronic form or mapped to a Radio Frequency Identification Device embedded on to the conveyance in such manner as may be notified by the Commissioner:
(2) In case, invoice is issued in the manner prescribed under sub-rule (4) of rule 48, the Quick Response (QR) code having an embedded Invoice Reference Number (IRN) in it, may be produced electronically, for verification by the proper officer in lieu of the physical copy of such tax invoice.”
On the issue raised on whether it is mandatory to carry a physical copy of a tax invoice even in the case of E-invoices, it has been clarified that:
With respect to Section 138A (1)(a) i.e., where it is mandated that the person in charge of conveyance shall carry a physical copy of an invoice, Section 138A (2) as amended, brings in an unambiguous exception in the cases where Invoice has been raised in the manner prescribed in Rule 48 (4) i.e., an E-invoice. In such cases, instead of a physical copy of a tax invoice, the Quick Response (QR) code which has the invoice reference number embedded in it, can be produced electronically for verification.
There is no requirement to carry a physical copy of the tax invoice in case of E-invoices and a QR code can be submitted in lieu of a physical copy of a tax invoice.
RESTRICTION ON REFUND OF UNUTILIZED ITC ON EXPORT OF GOODS WHICH ARE SUBJECT TO NIL RATE OF EXPORT DUTY
Section 54 of the CGST Act, 2017 specifies provisions pertaining to refunds. Sub-section 3 provides for refund of unutilized ITC and restriction of refund in certain cases. The first proviso to Section 54 (3) states that:
“Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty”
Refund of Unutilized ITC is restricted in case the goods being exported, subject to Payment of Export Duty at the time of export, at the rate specified in the Second Schedule to Customs Tariff Act, 1975.
The issue raised was whether the refund of unutilized input tax credit is restricted in cases where export goods are subject to Nil rate of export duty.
It has been clarified in the circular that the words “Subjected to export duty” refers to cases where goods exported are actually subjected to export duty i.e., some amount of export duty is paid at the time of export.
It is further clarified that the restriction shall not apply on the following:
- Goods which are subject to Nil Rate of export duty as specified in Second Schedule to the Customs Tariff Act, 1975 i.e., the export tariff.
- Goods which are exempted from export duty by virtue of a customs notification.
- Goods which do not fall under the Second Schedule to the Customs Tariff Act, 1975 i.e., Goods which are not subjected to Export Duty.
The second schedule of the Customs Tariff Act, 1975 specifies the export tariff i.e., the rate of export duty for the list of goods specified. The goods which are specified in the second schedule are generally sovereign resources of India or resources which are scarce. Therefore, it is critical to understand that refund of unutilized ITC that is accumulated, on account of Input Taxes paid on the goods being exported, shall not be available when such exported goods are subjected to an export duty as per the export tariff under the Second Schedule of Customs Tariff Act, 1975 with the exception of goods subjected to Nil rate of export duty or are exempted.
NOVELLO COMMENTS:
The circular clearly set out parameters for of the relevant date to be considered for determining the financial year for the purpose of Section 16(4) after the delinking of a debit note from the underlying invoice from only an ITC perspective. The debit notes raised shall have a standalone position from an ITC perspective with respect of date of issuance of the debit note being considered for determining the financial year.
It is pertinent to note that the delinking of debit note from the underlying tax invoice is only from the perspective of Section 16 (4) and is not to be misinterpreted that a debit note maybe issued on standalone basis as a debit note can only be construed as a supplementary invoice for a supply already provided.
Further the circular has removed any ambiguity that may have existed on Physical copy of Invoice being mandated to be carried for movement of goods from an e-invoice perspective. Although, the circular clarifies that the possession of physical copy of tax invoice is not mandatory in case of E-invoices, it would be practical for the trucker to carry the physical copy.
It needs to be understood that the movement of goods occurs through truckers and that at the time of verification at a check post it would be practical to possess a physical copy of the tax invoice, along with the other documents, in a situation where the verifying officer might not be able to scan the QR code due to technical issues. There might also be circumstances where the truckers might not be technically equipped with suitable devices to submit the QR code.
The last clarificatory point aims to bring the class of persons that shall not be entitled to claim refund. Those exporters who have exported goods at Nil rate of export duty and have unutilized ITC can apply for a refund as per the provisions of Section 54 on the strength of this Circular. It must be borne in mind that no refund of unutilized ITC shall be available where ITC has been accumulated on account of Input taxes paid on the exported goods where such goods are subjected to an Export duty that is neither Nil rated nor exempted.
However, we would like to bring to the notice of our readers that the circular mentions the first proviso to Sec 54(3) whereas it should have been the second proviso to the said section. We hope the required amendment to the circular shall be made in the future to make this change.
These clarificatory points have definitely brought in a sense of clarity that was hovering among the various industries.
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