Applicability of Section 16(2)(aa) in specific scenarios

by | Mar 3, 2022 | Outlook

The introduction of Section 16(2)(aa) in the CGST Act (effective January 2022) has imposed additional obligations on recipients for claiming ITC. This provision allows ITC to recipient if supplier has furnished details of invoices or debit notes in statement of outward supplies and same have been communicated to recipient in manner specified in Section 37’.

Section 37 read with Rule 59 of the CGST Rules provides that every registered supplier is required to furnish details of its outward supplies in GSTR-1. In terms of Rule 60, such details are communicated to a normal recipient in GSTR-2A and to an Input Service Distributor (‘ISD’) in GSTR-6A.

Apart from Section 16(2)(aa), Rule 36(4) provides that a recipient cannot avail ITC unless details of invoices or debit notes have been furnished by supplier in GSTR-1 and communicated to recipient in GSTR-2B.

In this NITYA Outlook, we have analysed applicability of Section 16(2)(aa) in some contentious scenarios:

Scenario

Analysis

NITYA Comments

Receipt of RCM supplies from unregistered suppliers

Unregistered suppliers are not governed by GST law and hence do not furnish details of invoices in GSTR-1. Thus, question of auto-population of details in GSTR-2A/2B does not arise.

In these cases, recipient is responsible to generate self-invoice and undertake compliance of other legal provisions.

 

Section 16(2)(aa) will not apply. Circular No. 123/42/2019-GST dated November 11, 2019 issued in context of Rule 36(4) of the CGST Rules, also clarified that no matching of documents issued under RCM is not required being outside purview of Section 37(1).

Receipt of RCM supplies from registered suppliers

Under Section 37(1) read with Rule 59, registered supplier is required to furnish details of all outward supplies (including where GST is payable by recipient under RCM) in GSTR-1. Hence, these are also communicated through GSTR-2A/2B and matching requirement arises.

Section 16(2)(aa) will apply. However, this applicability can be contested basis following:

 a.      Where recipient has fulfilled its obligation of paying tax, ITC cannot be denied to recipient merely for supplier’s default in furnishing details in GSTR-1; and

 b.      Agenda Notes of 39th GST Council Meeting elucidates that Section 16(2)(aa) was introduced to curb malpractice of taking ITC on fake invoices. Accordingly, denial of ITC where tax has been paid to Government, was never objective of this provision

Receipt of supplies by an ISD

Under Section 37 read with Rule 60, details of outward supplies furnished by supplier in its GSTR-1, gets reflected in GSTR-6A of an ISD. Rule 36(4) deals only with invoices communicated in GSTR-2B. Hence, it may appear that there is no matching requirement for an ISD where invoices are communicated in GSTR-6A.

Section 16(2)(aa) will apply. In our view, Section 16(2)(aa), Section 37, Rule 59 and Rule 60 form complete code for matching requirement. Rule 36(4) does not create any additional requirement and therefore, absence of reference of GSTR-6A in Rule 36(4) will not absolve an ISD to comply with matching requirement. 

Independently, condition under Section 16(2)(aa) can be challenged in all cases where recipient acts in a bonafide manner and duly discharges all obligations at its end.

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