Rule 86B – Restriction on use of amount available in Electronic Credit Ledger
We all know 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 notification number 94/2020 – Central Tax dated 22 December, 2020 (prominently CGST Rules, 2017) for amendment to the Central Goods and Services Tax Rules, 2017 (prominently CGST Rules, 2017):-
- GST officer can cancelled or suspended GST registration under the CGST Rules, 2017 21A at the discretion of the tax officer;
- Changes in
- Some taxpayers cannot pay more than 99% of the total tax liability from their electronic credit account for the tax period.
- Notified change in e-way bill rules regarding validity and blocking due to non-filing of GSTR-3B.
Now, we want to discuss and deal only with regard to the new rules 86B of the Central Decedents and Services Tax Rules, 2017 from January 1, 2021 onwards. As notification number 94/2020 – Central tax dated 22 December, 2020, Rule 86B. Has been introduced which is 99% restricted to ITC availability in the electronic credit ledger of the registered person. Thus means 1% of the output liability to be paid in cash. This limit is applicable where the value of taxable supply, other than exempt supply and zero rated supply, exceeds in a month. Fifty lakh rupees. The intent of the law is to curb fake invoices by requiring payment of tax in cash.
The Central Board of Taxes (“CBIC”) having power in Section 164of the CGST Act, 2017, released a crucial Notification number 94/ 2020 – Central Tax, dated 22 December, 2020 by which a new Rule 86B of the CGST of the Rules, 2017, has been inserted.
The Rule 86B in word of the law is:-
“86B Restriction 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 the electronic liability lender to discharge his liability, in cases when the value of other exempt supplies of taxable supplies and zero rated supplies in a month. Exceeds Fifty lakh rupees:
Provide that the said restriction shall not
- The said person or the proprietor or karta or 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
- The registered person has received refund amount exceeding one lakh rupees in the preceding financial year on account of unutilized tax credit under the first provisional clause (i) of sub-section (3) of section 54;or
- The registered person has received a refund amount exceeding one lakh rupees in the preceding financial year on account of unused input tax credit under provisional clause (ii) of sub-section (3) of section 54; or
- The registered person discharges his liability towards the output tax through electronic cash bookkeeping, which is more than 1% of the total production tax liability, applied cumulatively, up to the said month in the current financial year; or
- The registered person is:-
- Government Department; or
- A Public Sector Undertaking; or
- A Local Authority; or
- A Statutory body:
It is further stated that the Commissioner or an officer authorized by him in this regard may remove the said restriction after such verification and such safeguards as he may think fit.”
This we started that Rule 36 (4) of CGST Rules, 2017 is about the benefit of ITC ban, while the restriction on the use of available amount in electronic ledger comes 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 Thousand Rupees, then 1% of such tax liability shall be paid in cash.
Not – Applicability of Rule 86B:-
This Rule is Not applicable in the following cases:-
- In a case where the registered person has paid Rs. 1,00,000 / – as income tax under Income Tax – 1961 in each of the last two financial years;
- In the case where the registered person has received a fund of more than Rs. 1,00,000 / – in the preceding financial year of export under LUT, which is without payment of tax or under invert tax text;
- In the case where the person registered cumulatively till said month in the current financial year has discharged his output tax liability which is more than 1% of the total production tax liability.
- This rule is not applicable to Government Deportations, Public Sector Undertakings, Local Authorities and Statutory Bodies.
It is said that the Government believes that fake companies will not pay Income Tax of more than Rs. 1,00,000/- in the last 2 Financial years, therefore, this rule will not be applicable to registered persons who have paid Rs. Has paid more than Income Tax. 1,00,000 / – in the last 2 Financial years. However, it is also important to note that an Income Tax of Rs1,00,000. If a fake company is working in Crores, then 100,000 will not be a big deal.