New Rule restricting use of ITC for discharging Output Tax liability

The CBIC has notified Central Goods and Services Tax (Fourteenth Amendment) Rules, 2020 which seeks to amend Central Goods and Services Tax Rules, 2017 vide Notification No. 94/2020 dated 22/12/2020.

The said Rules have laid out new rule restricting the use of ITC for discharging the Output Tax liability. It has also amended the Rule 36(4).

Highlight of Fourteenth Amendment Rules, 2020 are:

• A new sub-rule 4A under Rule 8 has been substituted which stated that every application made under Rule 4 shall be followed by biometric-based Aadhaar authentication and taking photograph along with taking biometric information, photograph and verification of such other KYC documents, as notified, unless the applicant is exempted under sub-section (6D) of section 25, if he has opted not to get Aadhaar authentication done.
• Period under Rule 9 for grant of registration has been increased to 7 working days, and in case a person does not undergo Aadhar based authentication or where proper officer deems fit, registration shall be granted within 30 days after physical verification of place of business.
• Rule 36(4) on ITC (Input Tax Credit) limitation has been further restricted to 5% from earlier 10%. This will come into force w.e.f. from 1st Jan 2021.
• Rule 59 has been inserted to restrict the filing of GSTR-1 if GSTR-3B of two preceding months (preceding tax period for quarterly returns) has not been furnished.
• Rule 86 B : Rule 86B restricts the use of amounts available in electronic credit ledger. 

The taxpayer has to mandatorily pay at least 1% of his liability through cash ledger if monthly taxable supply (other than exempt supply and zero-rated supply) exceeds 50 Lakhs.

In other words, 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.

It may be pertinent to note that Rule 86B doesn’t applies to Govt. Department, PSU, Local Authority, Statutory Body, on registered person who had deposited more than Rs 1 lakh rupees as income tax under the Income-tax Act, 1961 in each of the last two financial years; registered person who has received a refund more than Rs 1 lakh rupees in the preceding financial year on account of export under LuT or inverted tax structure; cumulatively upto 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.

The period of validity of e-way bills under Rule 138 has been amended (w.e.f January 2021) and e-way bill generation shall be restricted under Rule 138E during the period of suspension of registration under Rule 21A.