In a recent and significant update to GST regulations, registered persons in India can now clear unpaid Reverse Charge Mechanism (RCM) liabilities incurred from July 2017 up to October 2024. This opportunity arises from amendments made to Section 31(3)(f) of the GST Act and new regulatory guidelines outlined in Notification No. 20/24, issued on October 8, 2024. According to these updates, registered entities are permitted to issue self-invoices for unpaid RCM liabilities retroactively and claim the related Input Tax Credit (ITC).
This article examines how the amendments affect registered taxpayers, the timeline for issuing self-invoices, and potential legal considerations related to claiming ITC on backdated RCM payments.
Key Points from the GST Amendments
Amendments to Section 31(3)(f) of the GST Act: Section 31(3)(f) of the GST Act previously mandated that a registered person liable to pay GST under RCM must issue an invoice when receiving goods or services from an unregistered supplier. However, no time limit for issuing such invoices was specified. In 2024, amendments introduced a 30-day deadline for issuing self-invoices, effective from November 1, 2024.
Notification No. 20/24: Notification No. 20/24, issued on October 8, 2024, implements a new rule, 47A, that requires registered taxpayers to issue self-invoices for RCM transactions within 30 days of receiving goods or services. However, this rule does not apply retroactively, meaning there was no specific deadline for self-invoicing before November 2024. This absence of a previous time limit allows registered persons to issue self-invoices for transactions dating back to FY 2017-18.
53rd GST Council Meeting Recommendations: The GST Council clarified that registered recipients alone must issue invoices for supplies from unregistered suppliers under RCM. Additionally, the relevant financial year for calculating ITC eligibility under Section 16(4) is the year in which the recipient issues the self-invoice, irrespective of when the goods or services were received. This recommendation reinforces that self-invoicing in November 2024 for prior periods enables ITC claims for that period.
Circular No. 211/5/2024-GST: This circular, issued on June 26, 2024, states that any late payment of tax for backdated self-invoicing will attract interest. However, the circular also implies that penalties for delays prior to the amendment might be void, indicating that the government may not penalize registered persons for previously unpaid RCM liabilities.
Practical Implications for Registered Persons
Registered persons can now retrospectively issue self-invoices in November 2024 for any unpaid RCM liabilities incurred since FY 2017-18. They can then report these self-invoices in their GSTR-3B filing for December 2024 and claim ITC against these payments. However, they may incur interest on any delayed tax payments, as stipulated in the June 2024 circular.
It is noteworthy that while ITC claims can be made for past RCM liabilities, taxpayers may face scrutiny from the GST authorities, especially if prior non-compliance notices were issued.
Potential Legal Challenges
The retrospective allowance for issuing self-invoices and claiming ITC may not be straightforward. Some legal issues that could arise include:
Interest Obligations: While the law allows ITC claims for retrospective self-invoicing, taxpayers will need to calculate and pay interest on delayed RCM payments. The calculation of interest may require careful documentation to avoid further liabilities.
ITC Eligibility Across Financial Years: The amendment's provision that the financial year for ITC calculation is based on when the self-invoice is issued may invite legal challenges. Businesses and auditors may need further clarification from the GST authorities to ensure compliance and avoid disputes over ITC claims in multi-year contexts.
Steps for Registered Persons to Take
To leverage this opportunity, registered persons should:
Identify and Quantify RCM Liabilities: Review past purchases from unregistered suppliers from July 2017 to October 2024 to determine unpaid RCM liabilities.
Issue Self-Invoices in November 2024: Create self-invoices for identified RCM liabilities, as per the new requirements, and document them thoroughly for compliance.
File in December 2024: Include these self-invoices in the GSTR-3B return for December 2024 and claim the eligible ITC.
Calculate Interest: Ensure interest on delayed RCM payments is calculated and paid, as outlined in Circular No. 211/5/2024-GST.
Conclusion
The recent GST amendments represent a unique window for registered persons to retrospectively settle RCM liabilities without facing penalties for delays prior to November 2024. However, the interest requirement remains, making it essential for taxpayers to assess and document their RCM obligations accurately. While these updates aim to simplify compliance, registered persons may still face legal challenges, especially regarding multi-year ITC claims.
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