Rule
86A in the CGST Rules vide notification No 75/2019 has been introduced w.e.f.
26.12.2019 to empower the revenue to impose additional condition/restriction on
use of amount of input tax credit available in the electronic credit ledger. This
rule has given drastic powers to the Department to restrict the credit of any
person in certain cases where there is reason to believe that ITC is availed
fraudulently or is ineligible.
We
have recently seen the practice of GST Department of blocking the credit of a
person merely by way of computer entry on the common portal of GST on one pretext or
the other, without there being any legal provision allowing expressly providing
for such cource of action. The Gujarat High Court in a recent case namely Valerius
Industries Vs Union of India decided on 28.08.2019 has
held that such blocking of credit by way of mere computer entry is absolutely
illegal.
Now,
by introduction of Rule 86A it seems
that a somehow similar cource of action like blocking of credit has been given
a legal basis. Rule 86A has empowered the Commissioner or an officer authorised
by him in this behalf, not below the rank of an Assistant Commissioner to put a
restriction for maximum of one year on
the input tax credit available in the credit ledger of a person to the effect that it
cannot be used for discharging the GST output liability u/s 49 or not to allow
refund of the credit in some situations.
Rule 86A as introduced runs as under:
“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.”.
From
the above rule it is clear that before power under Rule 86A is exercised there
must be a reason to believe that credit of input tax available in the
electronic credit ledger has been fraudulently availed or is ineligible qua the
following reasons:
1.
Supplier
found non-existant or not conducting business on its registered place:It
has been availed on the basis of documents prescribed under Rule 36 i.e tax
invoice,debit note etc issued by a registered supplier who has been found
non-existent or not to be conducting any business from any place for which
registration has been obtained.
2.
Non
receipt of goods or services or both: It has been availed on the basis of documents prescribed
under Rule 36 i.e tax invoice,debit note etc without receipt of goods or services or both.
3.
Tax
not paid into the Government treasury: It has been availed on
the basis of documents prescribed against which no tax has been paid into the
Government treasury.
4.
Recipient
found non-existant or not conducting business on its registered place: It
has been availed on the basis of documents prescribed under Rule 36 i.e tax
invoice,debit note etc issued by a registered person availing the credit (i.e. recipient)
who has been found non-existent or not
to be conducting any business from any place for which registration has been
obtained
5. Availing of credit without documents: 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.
The
restriction on the utilization of credit under Rule 86A will ceases to have effect after the expiry of a period of
one year from the date of imposing such restriction.
It would be interesting to see whether the mechanism of blocking of credit (as is currently done on the common portal by the Department) is adopted for exercising the power under Rule 86A or some other some other mechanism is worked out.
The
restriction in the Rule 86A though seems to be temporary but is drastic as it
can be used if there is a reason to believe as to the grounds stated above and
a final finding is not required as to eligibility or ineligibility of the
credit. However, before exercising this power reasons must be recorded in
writing. Hopefully the drastic powers in the rule are exercised spairingly and
not used as a routine matter in every
case.
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