How to Avail Benefit of the Newly Inserted Section 16(5) of the CGST Act, 2017 — A Comprehensive Thesis

The introduction of Section 16(5) under the CGST Act, 2017 marks a significant policy reform in India’s GST framework. This new provision aims to provide relief to taxpayers who were earlier subjected to rigid timelines and restrictions under Section 16(4). With the digital ecosystem maturing and the government increasingly acknowledging genuine hardships faced by compliant businesses, the new provision offers an additional window and mechanism to secure Input Tax Credit (ITC) in deserving cases. Understanding how to effectively utilise Section 16(5) is crucial for businesses aiming to minimise tax burden, avoid litigation, and ensure seamless credit flow.

Section 16(5) was introduced to address situations where ITC became unavailable or was denied due to procedural or timing-based lapses rather than substantive non-compliance. The legislature recognised that taxpayers fulfilling all substantive conditions—receiving goods or services, possessing valid tax invoices, and having suppliers who paid applicable tax—should not suffer undue denial of credit solely because of procedural delays. Section 16(5) therefore allows a remedial route for taxpayers to restore or re-avail such credit under specific conditions and prescribed procedures.

Section 16(5) provides a structured legal mechanism for taxpayers to avail ITC that otherwise would have been time-barred or disputed under previous provisions. The key benefits include:

• A specialised avenue to claim or restore ITC that was initially reversed or disallowed.
• Relief for cases where supplier compliance occurred after the statutory timeline.
• Protection from harsh consequences arising from procedural lapses.
• A clear and regulated process for granting ITC through departmental approval or system-verified processes.

The provision expands the taxpayer’s ability to claim ITC while ensuring checks and balances to prevent misuse.

To utilise Section 16(5), taxpayers must satisfy several eligibility conditions. These typically include:

• Possession of a valid tax invoice or debit note issued by a registered supplier.
• Actual receipt of goods or services corresponding to the invoice.
• Confirmation that the supplier has furnished the details of the invoice in their outward supply return.
• Evidence that the tax due on the supply has been paid by the supplier.
• Demonstration that the taxpayer had a reasonable cause for failure to claim ITC within the original statutory timeline.

These conditions ensure that only genuine and bonafide claims are entertained.

5.1 Step 1: Identify Eligible Invoices or Transactions

Taxpayers must first identify ITC entries that were denied or reversed due to Section 16(4) time limits, delayed compliance by suppliers, or procedural oversight. Proper reconciliation of GSTR-2B, purchase registers, and books of accounts is essential to isolate eligible transactions.

5.2 Step 2: Compile All Required Documentation

Taxpayers must ensure they have the following:

• Original tax invoice or debit note.
• Goods receipt note or proof of services received.
• Supplier filing evidence such as outward supply details.
• Proof of tax payment by supplier (ledger extract, filing status).
• Written justification explaining the delay or reason for earlier disallowance.

5.3 Step 3: File the Claim in the Prescribed Format

Section 16(5) operates through a designated form, declaration, or return adjustment mechanism as prescribed by rules. The taxpayer must file their claim through the GST portal or submit an application to the jurisdictional officer, depending on the notified procedure. The claim must fully disclose invoice details, the reason for delayed availment, and proof of supplier compliance.

5.4 Step 4: Verification by the Tax Authorities

Once a claim is filed, authorities will verify: authenticity of the invoice, alignment with supplier’s return, payment of tax to the government, and compliance with conditions of Section 16 and related rules. Authorities may request additional documents or clarifications before granting ITC under this provision.

5.5 Step 5: Re-credit of ITC or Modification in Electronic Credit Ledger

Upon successful verification, the ITC is restored or credited to the taxpayer’s electronic credit ledger. This may be done through an order for re-credit, automated system approval, or revision of earlier returns. This restores the taxpayer’s legitimate claim without causing distortion in compliance history.

6.1 Supplier Filed GSTR-1 or Paid Tax Late

Sometimes suppliers file details after the statutory deadline, which previously made ITC unavailable. Section 16(5) helps taxpayers claim such ITC if the supplier eventually complies.

6.2 Clerical, Procedural, or Technical Errors

Mistakes during return filing, inadvertent omissions, or portal-related issues may previously have caused ITC loss. The new provision allows corrective benefit for such cases.

6.3 ITC Reversed Earlier Due to Non-Payment within 180 Days

Taxpayers who later paid the supplier can utilise Section 16(5) to regain their ITC without being barred by earlier time restrictions.

6.4 Discrepancies Due to Amendments or Reissued Invoices

When suppliers issue corrected or amended invoices after the time limit, Section 16(5) acts as a legitimate relief mechanism.

A strong documentary trail dramatically increases the chances of successful benefit under Section 16(5). Taxpayers should maintain: supplier correspondence, payment proofs, ledger reconciliations, system-generated return summaries, justification notes for all delayed claims, and audit trails for earlier reversals or denials. These documents ensure transparency and credibility during departmental verification.

Section 16(4) prescribes strict time limits, whereas Section 16(5) provides an exception-based relief mechanism. The interaction can be understood as follows:

• Section 16(4) applies by default.
• Section 16(5) operates as a corrective or curative provision for genuine cases.
• Section 16(5) does not dilute substantive conditions for ITC; it only relaxes procedural hardships.
• Taxpayers must still meet all standard requirements for ITC such as invoice availability, goods receipt, and tax payment by supplier.

Thus, Section 16(5) acts as a safety net, not a substitute.

Filing vague or incomplete claims, non-availability of supporting documents, failure to reconcile supplier data, claiming invoices where the supplier has not complied, misclassifying ineligible invoices, and missing prescribed deadlines for filing claims are common errors. Avoiding these errors helps ensure smooth processing of claims.

Taxpayers may face challenges such as delayed supplier compliance, difficulty in obtaining documentary evidence, portal-related technical issues, ambiguity in interpreting procedural rules, and time-consuming verification processes. A proactive compliance strategy can mitigate most hurdles.

• Conduct monthly reconciliation of GSTR-2B with purchase registers.
• Maintain communication with non-compliant suppliers.
• Keep an internal log of ITC reversals and pending claims.
• Train accounting teams on Section 16 provisions.
• Seek professional evaluation for complex cases.
• Maintain a separate documentation folder tagged to Section 16(5) claims.

The newly inserted Section 16(5) of the CGST Act, 2017 serves as an important corrective tool within the GST framework. It bridges the gap between rigid statutory timelines and the dynamic realities of commercial transactions. By providing taxpayers an avenue to regain legitimate ITC lost due to procedural lapses, it enhances fairness, reduces litigation, and supports smoother tax credit flow. Businesses that understand the eligibility, prepare proper documentation, and follow the prescribed procedure can optimise their tax position and significantly reduce financial exposure under GST. Section 16(5) thus stands as a pragmatic reform that promotes both compliance and taxpayer welfare.