GST UPDATE ON RULE 86B RESTRICTING USGAGE OF CREDIT:- 165/2020-21

The GST Law was introduced with the objective of providing seamless flow of input tax credit to the taxpayers but the amendments made in the law from time to time have imposed various kinds of restrictions in availability or utilisation of input tax credit. The introduction of provision contained in Rule 36(4) of CGST Rules, 2017 restricting availment of input tax credit for the invoices not reflected in GSTR-2A to the extent of 10% of the eligible input tax credit reflected (which is again reduced to 5% w.e.f. 1.1.2021) is a big hurdle for the taxpayers. Now, introduction of Rule 86B, imposing restrictions on use of amount available in the electronic credit ledger is another nightmare for the taxpayers as it is surely against the basic motto of seamless availability of input tax credit in GST regime.

According to this provision, in case where the value of taxable supply other than exempt supply and zero-rated supply in a month exceeds fifty lakh rupees, then 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. For example- if the total liability of a registered person for a month is Rs. 10,80,000 (taxable value of supply being Rs. 60 Lakhs liable to GST at the rate of 18%), then in that case, the registered person can use the input tax credit to the extent of 99% of Rs. 10,80,000/- being Rs. 10,69,200/-. The registered person will be liable to pay Rs. 10,800/- in cash irrespective of the amount of input tax credit available with the person.

However, this provision has certain exceptions which are as follows:-

(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 in each of the last two financial years for which the time limit to file return of income under sub-section (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 for exports made under LUT;

(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 inverted duty structure; 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:

It is also provided 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.

The above provisions incorporated with a view to restrict utilisation of input tax credit will definitely add more complexities and compliance burden on the assessees thereby defeating the ultimate intention of GST being a simple and easy tax reform.

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GST UPDATE ON RULE 86B RESTRICTING USGAGE OF CREDIT:- 165/2020-21

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