Rule 86A –Conditions of use of amount available in Electronic Credit Ledger.
[Ref: Notification No. 75/2019-Central Tax dated 26th December, 2019]
In exercise of the powers conferred by Section 164 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017), the Central Government, on the recommendations of the Council, has issued a Notification No. 75/2019-Central Tax dated 26th December, 2019 to amend the Central Goods and Services Tax Rules, 2017 (CGST Rules, 2017) majorly with regard to the following-
1. Changes in Rule 36(4) of CGST Rules, 2017 from 1st January, 2020- recipients can claim provisional Input Tax Credit (“ITC”) in GSTR-3B to the extent of 10% instead of earlier 20% of the total ITC available in GSTR-2B for the month;
2. Insertion of new Rule 86A providing conditions of use of amount available in electronic credit ledger.
Now, we would like to discuss and deal herein only with regard to change New Rule 86A of CGST Rules, 2017 from 26th December, 2019. The Rule 86A in words of the law is-
“86A. Conditions of use of amount available in electronic credit ledger.
(1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as-
a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36-
i. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
ii. without receipt of goods or services or both; or
b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or
c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36,
may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.
(2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.
(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”
It is stated that Rule 36(4) of CGST Rules, 2017 is regarding availment of ITC restriction whereas conditions and restriction on use of amount available in Electronic Ledger is covered under Rule 86A & 86B of CGST Rules, 2017. Please note that ITC once availed as per Section 16 (Rules thereto i.e. 36) is credited to Electronic Credit ledger of the registered person and can be utilized for payment towards output tax as provided in Section 49 of the CGST Act, 2017 subject to the conditions and restrictions mentioned in Rule 86A & 86B.
This is another step taken by the Government to restrict the ITC available to the tax payer. According to this rule the Commissioner or any other officer not below the rank of Assistant Commissioner authorized by him can restrict the ITC. However, such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction. The ITC can be restricted in the following circumstances.
a) ITC availed on invoices/debits notes/other documents of the supplier who has been found non-existent or not to be conducting business, or
b) ITC availed on invoices/debits notes/other documents without receipt of goods or services, or
c) ITC availed on invoices/debits notes/other documents of the supplier where the tax charged has not been paid to the Government, or
d) Where the registered person availing ITC has been found non-existent or not to be conducting business, or
e) Where the registered person availing ITC is not in possession of invoices/debits notes/other documents.
With the introduction of this rule, tax payer has to be very cautious about the selection of their supplier and to make proper due diligence of the supplier before executing any transaction otherwise there may a trouble. The action may be taken in case where ITC has been taken fraudulently and ineligible credit taken.
*****
Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.
Author Bio
