New ITC Changes Under GST: What Taxpayers Must Know

The Goods and Services Tax (GST) framework has seen significant updates concerning Input Tax Credit (ITC) with amendments aimed at refining compliance and resolving disputes. The Finance (No. 2) Act, 2017, introduced substantial changes to Section 16 of the CGST Act, 2017, impacting how ITC is availed and rectified. This blog highlights the key changes, special procedures for rectification, and clarifications issued by the CBIC.

Key Changes in Input Tax Credit: Retrospective Amendments

he Finance (No. 2) Act, 2017, amended Section 16 of the CGST Act, 2017, by inserting two new sub-sections (5) and (6) with retrospective effect from July 1, 2017. These changes extend the time limit for availing ITC under certain conditions. GST Registration

Retrospective Provisions

Extension of Time Limit:

Sub-sections (5) and (6) allow retrospective extension of ITC eligibility for specified cases under Sub-section (4) of Section 16.

No Refund for Retrospective ITC Adjustments:

Taxpayers cannot claim refunds for taxes paid or ITC reversed due to these retrospective amendments.

New ITC Changes Under GST: What Taxpayers Must Know

Special Procedure for Rectification of Orders

Notification No. 22/2024 – Central Tax, dated October 8, 2024, introduced a special procedure under Section 148 of the CGST Act to rectify orders issued against taxpayers for wrong availment of ITC. These rectifications apply to specific cases where ITC is now permissible under Sub-sections (5) and (6) of Section 16.

Who Can Apply for Rectification?

Taxpayers can file rectification applications if:

Orders under Section 73 (non-payment or short payment) or Section 74 (fraudulent ITC claims) have been issued.
No appeal has been filed against the order, or appeals under Sections 107 or 108 are pending.

Filing the Application

Applications for rectification must be submitted electronically on the GST portal using valid credentials.

Taxpayers should provide details of:

Confirmed demand for ITC wrongfully availed.
Eligibility of ITC under Sub-sections (5) or (6) of Section 16.

Processing of Applications

The proper officer will review and decide on rectification applications within three months of filing.
If rectification adversely impacts the taxpayer, the officer must adhere to the principles of natural justice. GST Filing

CBIC Clarifications on ITC Rectification

The CBIC Circular No. 237/31/2024-GST, dated October 15, 2024, addresses various scenarios for implementing the retrospective ITC provisions:

No Demand Notice Issued:

If no notice under Sections 73 or 74 has been issued, rectification can proceed without complications.

Pending Notices or Appeals:

Rectification is possible where:

Demand notices have been issued, but adjudication orders are pending.
Orders under Sections 107 or 108 have been issued, but appeals are not filed.

Revisional Proceedings:

Taxpayers under revisional scrutiny can file rectification applications if no final order has been passed.

Rejected Applications:

If ITC eligibility under Sub-sections (5) and (6) is not applicable, rectification applications will be summarily rejected.

Timelines for Filing Rectification Applications

Taxpayers must adhere to the following timelines:

Applications under Notification No. 22/2024 must be filed within six months of the notification’s issuance.
In cases unrelated to Sub-sections (5) and (6) of Section 16, rectifications should follow the provisions of Section 161 within the specified time limits.

Steps to Rectify Orders Electronically

Navigate to the rectification application section and upload necessary details, including:

Order details confirming ITC wrongfully availed.
Supporting documents proving ITC eligibility under the amended provisions.

Submit the application for review by the proper officer.

Appeals Against Rectified Orders

Taxpayers dissatisfied with rectified orders can appeal under Sections 107 or 112 of the CGST Act within the prescribed timeframe.

The retrospective changes to ITC provisions under Section 16 of the CGST Act aim to streamline compliance and provide relief in eligible cases. The special rectification procedure, coupled with CBIC clarifications, offers a structured framework for addressing past discrepancies in ITC claims.

Taxpayers are encouraged to review past ITC claims and initiate rectification applications promptly to ensure compliance and maximize benefits under the amended provisions. Stay updated with GST developments to leverage these changes effectively for your business.