We all are aware that recently, 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. 94/2020-Central Tax dated 22nd December, 2020 to amend the Central Goods and Services Tax Rules, 2017 (“CGST Rules, 2017”) majorly with regard to the following-
1. GST registration can be cancelled or suspended under CGST Rules, 2017 21A at the discretion of the tax officer in certain cases;
2. Changes in Rule 36(4) of CGST Rules, 2017 from 1st January, 2021- recipients can claim provisional Input Tax Credit (ITC) in GSTR-3B to the extent of 5% instead of earlier 10% of the total ITC available in GSTR-2B for the month;
3. Certain taxpayers cannot make payment from their electronic credit ledger in excess of 99% of the total tax liability for the tax period.
4. Changes notified in e-way bills Rules regarding validity and blocking due to non-filing of GSTR-3B.
Now, we would like to discuss and deal herein only with regard to new Rule 86B of CGST Rules, 2017 from 1st January, 2021. As per Notification No. 94/2020-Central Tax dated 22nd December, 2020, Rule 86B has been introduced which has imposed 99% restricted on ITC available in Electronic Credit Ledger of Registered Person. This means 1% of output liability to be paid in cash. This limitation is applicable where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds Rs. Fifty Lakh Rupees. The intent of law is to curb fake invoicing by requiring him to pay tax in cash.
The Central Board of Indirect Taxes (“CBIC”) having power in Section 164 of the CGST Act, 2017, released a crucial Notification No. 94/2020-Central Tax, dated 22nd December, 2020 by which a new Rule 86B of the CGST Rules, 2017, has been inserted.
The Rule 86B in words of the law is-
“86B. Restrictions on use of amount available in electronic credit ledger.- Notwithstanding anything contained in these rules, the registered person shall not use the amount available in electronic credit ledger to discharge his liability towards output tax in excess of ninety-nine per cent. of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees:
Provided that the said restriction shall not apply where –
(a) the said person or the proprietor or karta or the managing director or any of its two partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees, as the case may be, have paid more than one lakh rupees as income tax under the Income-tax Act, 1961(43 of 1961) in each of the last two financial years for which the time limit to file return of income under subsection (1) of section 139 of the said Act has expired; or
(b) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (i) of first proviso of sub-section (3) of section 54; or
(c) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (ii) of first proviso of sub-section (3) of section 54; or
(d) the registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, upto the said month in the current financial year; or
(e) the registered person is –
(i) Government Department; or
(ii) a Public Sector Undertaking; or
(iii)a local authority; or
(iv) a statutory body:
Provided further that the Commissioner or an officer authorised by him in this behalf may remove the said restriction after such verifications and such safeguards as he may deem fit.”.
It is stated that Rule 36(4) of CGST Rules, 2017 is regarding availment of ITC restriction whereas restriction on use of amount available in Electronic Ledger is covered under Rule 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 restrictions mentioned in Rule 86A & 86B.
It is important to note herein that Rule 86B overrides all other CGST Rules. This rule starts with non-obstante clause and has override impact on any other provision of the rules. If a registered person supplies taxable supply [not exempt nor export of goods or services with or without LUT) in a month more than Rs.50,00,000/-, then 1% of such tax liability shall be paid in Cash.
Non-applicability of Rule 86B:-
This Rule is NOT applicable in the following cases:-
1. In case where the registered person deposited more than Rs 1 lakh rupees as Income Tax under the Income-tax Act, 1961 in each of the last two financial years;
2. In case where registered person has received a refund more than Rs 1 lakh rupees in the preceding financial year on account of export under LUT i.e. without payment of tax or Inverted Tax Structure;
3. In case where cumulatively up to the said month in the current financial year registered person has discharged his output tax liability in cash which is in excess of 1% of the total output tax liability; [suppose in the Financial Year 2020-2021, up to November 2020, output tax liability comes to Rs 10 lakh and taxpayer deposited Rs 10,000/- in cash up to November 2020 then this rule is not applicable]
4. This rule not applicable to Govt department, PSU, Local Authority and Statutory Body.
It is stated that the Government assumes that fake companies might not have paid income tax of more than Rs. 1,00,000/- in last 2 financial years, therefore, this rule shall not applicable to those registered persons who have paid income tax more than Rs. 1,00,000/- in last 2 financial years. However, it is also important to note that income tax of Rs. 1,00,000 would not be a big deal if a fake company is dealing in crores.
Remark: One percent of the tax liability will always remain unveiled for which refund will also not be granted.
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.