CBIC on recommendations of 38th GST council meeting has vide Notification No.- 75/2019-CT; Dated 26 Dec 2019 made following restrictions on Availment and Utilization of ITC. Availment of ITC is governed by Sec 16 of GST Act, 2017 and Utilization of ITC by Section 89 of GST Act, 2017. Lets first see if newly inserted rules namely, Rule 36(4) and Rule 86A are within the ambit of the GST Act, 2017.

> Restrictions on availment of ITC

Availment of ITC is provided under Section 16 of CGST Act, 2017

Sec 16 Eligibility and Conditions for taking Input Tax Credit

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.”

Rule 36 of GST Act, 2017 prescribes various documentary requirements and conditions for claiming Input tax credit as per Section 16. Newly inserted Rule 36(4) of GST Act 2017 provides as under:

Rule 36 Documentary requirements and conditions for claiming ITC

(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.”

As announced in the 37th GST Council Meeting, the government in order to nudge the taxpayers to timely file return of outward supplies, has imposed capping on availment of ITC in GSTR3B .

Notification No.- 49/2019- CT dated 9 Oct 2019 had inserted sub rule (4) to Rule 36 of CGST Rules 2017, restricting the taxpayer from availing ITC in excess of 120% of eligible ITC appearing in GSTR2A.

Ex-

Particulars Amount
Eligible ITC appearing in GSTR2A (a)
(GSTR1 filled by Counterparty)
100
Eligible ITC not appearing in GSTR2A (b)
(GSTR1 not filled by counterparty)
50
Total Eligible ITC on Inward Supplies (a+b) 150
Maximum Permissible ITC in GSTR3B (a X 120%) 120

Prior to the introduction of the above notification entire eligible ITC of Rs 150 was availed by the taxpayer in GSTR3B return. However, with effect from 9 Oct 2019 out of eligible ITC not appearing in GSTR2A of Rs 50, a sum of Rs 20 can only be claimed in GSTR3B of the current month. Remaining ITC of Rs 30 can be claimed in the subsequent months when the corresponding invoices are uploaded by the suppliers in GSTR1.

Now, Notification No.- 75/2019-CT has further reduced the restriction to 110% of eligible ITC with effect from 1 Jan 2020.

Restrictions on utilization of ITC

ITC once availed as per Section 16 is credited to Electronic Credit ledger of the registered person and can be utilized for payment towards output tax as provided in Section 49.

Sec 49  Payment of tax, interest, penalty and other amounts

(4) The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in   such manner and subject to such conditions and within such time as may be prescribed.”  

Rule 86 and Rule 86A provides various conditions for utilization of ITC available in Electronic Credit Ledger. Newly Inserted Rule 86A provides as under:

Rule 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.”

 The Government, in order to curb the menace of fraudulent ITC and fake invoices, has introduced Rule 86A restricting utilization of ITC with effect from 26 Dec 2019. Whereas Rule 36(4) restricts availment of ITC based on input available in GSTR2A, Rule 86A further restricts utilization of such ITC availed.

Rule 86A empowers the commissioner to block utilization/refund of ITC availed fraudulently/ineligible, in the following circumstances:

a) ITC availed on invoices of the supplier who has been found non-existent or not to be conducting business, or

b) ITC availed on invoices without receipt of goods or services, or

c) ITC availed on invoices 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 a tax invoice.

1) Can ITC be blocked under Rule 86A in case the amount is available in GSTR2A?

ANS: Yes, ITC can be restricted for utilization/ refund even if such amount is available in GSTR2A of the registered taxable person, if the supplier is non- existent or the tax is not paid to the government.

2) When can this Blocked ITC be utilized for payment of tax?

ANS: Blocked ITC under Rule 86A will be available for payment of output tax when

i) supplier is found and output tax is paid to the government, or

ii) Goods or services are received or

iii) Invoice is in possession of registered person or

iv) after expiry one year from the date of imposing such restriction.

Author can be reached at ca.hsinghal@gmail.com

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2 Comments

  1. Rakesh deka says:

    You have mentioned Sec 89 of GST Act 2017 abount availment and utilization of ITC. Sec 89 is related to Liability of Director for payment of tax. Where is the consfusion?

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