The CBIC has recently issued a detailed clarification in GST Circular No. 237/31/2024 dated October 15, 2024. This clarification addresses the implementation of the retrospective provisions in Sections 16(5) and 16(6) of the CGST Act, introduced through the Finance Act (No. 2) of 2024. The circular aims to resolve uncertainties surrounding ITC claims, particularly in cases where demands were raised due to non-compliance with Section 16(4). It also clarifies how past cases should be dealt with under the amended provisions.

In this article, we’ll explore the main takeaways from the CBIC circular and outline the procedure for rectifying past ITC claims.

Retrospective Extension of ITC Claim Period

Sections 16(5) and 16(6) of the CGST Act extend the time limits for claiming ITC retrospectively from July 1, 2017. This amendment offers relief to taxpayers who were unable to claim ITC within the prescribed period under Section 16(4). The retrospective application, however, has raised concerns about how past cases—where ITC claims were disallowed—should be handled.

To address these concerns, the GST Circular No. 237/31/2024 lays out specific instructions for various scenarios, ensuring that taxpayers can claim ITC for earlier periods without facing penalties for having missed the original deadlines.

Key Clarifications for Handling Past ITC Cases

The GST Circular No. 237/31/2024 provides clarity on how authorities and taxpayers should approach cases involving incorrect ITC availment due to non-compliance with Section 16(4). The guidance applies to different stages of tax proceedings, such as investigations, demand notices, and appeals.

Cases Without Demand Notices

In situations where proceedings for wrong ITC claims were initiated but no formal demand notice was issued under Sections 73 or 74 of the CGST Act, tax authorities must now consider the amended Sections 16(5) and 16(6). This allows taxpayers to benefit from the extended period for claiming ITC. Proper officers are required to take appropriate action under these provisions, even if informal documents like FORM DRC-01A were previously issued.

Cases with Demand Notices Issued but No Final Order

For cases where demand notices were issued but no final order was passed by the adjudicating authority, retrospective amendments to Sections 16(5) and 16(6) should be taken into account when issuing the final order. This will allow taxpayers to claim ITC, provided their case qualifies under the new provisions.

Appeals in Progress

In cases where orders have already been passed under Sections 73 or 74 and an appeal has been filed under Section 107, but no appellate order has been issued, the appellate authority must now consider the retrospective extension of ITC claims. This ensures that taxpayers who filed appeals due to denied ITC claims are treated fairly under the new legal framework.

Revisional Proceedings Pending

If revisional proceedings were initiated under Section 108 but no final order has been issued, the Revisional Authority is required to factor in the amendments. The revised provisions should guide the decision, ensuring that taxpayers are allowed to rectify their claims where applicable.

Final Orders with No Appeal Filed

Where final orders have already been passed, and either no GST appeal was filed, or no appeal is pending with the Appellate Tribunal, taxpayers can still apply for rectification under the special procedure laid out in Notification No. 22/2024 within 6 months. This must be done within six months of the notification date to rectify any past discrepancies involving ITC claims.

Special Procedure for Rectification of ITC Claims

For taxpayers whose ITC claims were denied due to violations of Section 16(4), but are now eligible under the retrospective amendments, the CBIC has provided a specific rectification process. Here are the key steps:

• Filing Period: Taxpayers must file for rectification within six months from the date of the notification issued on October 8, 2024.
• Application Submission: Applications can be filed electronically through the GST portal. Taxpayers need to submit relevant details, including Annexure A, to rectify past ITC claims.
• Order Processing: The proper officer who issued the original order will handle the rectification and is required to issue a new order within three months of the application.
• Rectified Orders: Summaries for rectified orders will be uploaded through the appropriate forms—FORM DRC-08 for cases under Sections 73 or 74, and FORM GST APL-04 for cases under Sections 107 or 108.
• Adverse Effect of Rectification: If rectification adversely affects the applicant, the principle of natural justice will apply. This means before passing the adverse order the proper office will give the opportunity to be heard to taxpayer.
• Appeal Rights: If the rectified order results in adverse outcomes for the taxpayer, they have the right to appeal under Sections 107 or 112 of the CGST Act.
• No refund: No refund will be granted for taxes already paid of ITC reversed, even if the ITC is now eligible due to the retrospective amendments in Section 16(5) and 16(6).

Limitations of the Rectification Process

It’s important to note that the special rectification process only applies to cases where ITC was denied due to violations of Section 16(4). Taxpayers whose cases don’t involve such contraventions cannot benefit from the special procedure.

Additionally, no refunds will be provided for taxes already paid or ITC that was reversed, even if the ITC is now eligible under the retrospective amendments.

Conclusion

The CBIC’s recent clarification offers critical guidance on handling retrospective ITC claims, ensuring that taxpayers can claim credits for past periods without undue penalties. The special rectification procedure provides a clear path for resolving disputes over ITC denials, but businesses must act within the six-month window to rectify their claims. This is a major relief for businesses that were unable to claim ITC earlier due to the stringent timelines under Section 16(4) and offers a fair resolution to historical ITC issues.

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