SECTION
49(4) Vs Rule 86B IN GST
In my opinion,
Rule 86B overrides section 49(4).
As we
all know Rules can’t override the sections, hence this rule is
Void-ab-initio.
Let’s
discuss in detail -
Now as
per the section -
49.
Payment of tax, interest, penalty and other amounts –
(4) The
amount available in the electronic credit ledger may be used for making any
payment towards output tax under this Act or under the Integrated Goods and
Services Tax Act in such manner and subject to such conditions
and within such time as may be prescribed.
In this
section, we can clearly read that utilisation of ITC is subject to Such manner,
conditions & time.
Manner – Section 49A: Notwithstanding
anything contained in section 49, the input tax credit on account of central
tax, State tax or Union territory tax shall be utilised towards payment of
integrated tax, central tax, State tax or Union territory tax, as the case may
be, only after the input tax credit available on account of integrated tax has
first been utilised fully towards such payment.
Section
49B: Notwithstanding anything contained in this Chapter and subject to the
provisions of clause (e) and clause (f) of sub-section (5) of section 49, the
Government may, on the recommendations of the Council, prescribe the order and
manner of utilisation of the input tax credit on account of integrated tax,
central tax, State tax or Union territory tax, as the case may be, towards
payment of any such tax.”.
Subsequently,
the rule 88A has been inserted to notify the above new provision via CT
notification no. 16/2019 dated 29th March 2019.
Rule
88A: Order of utilization of input tax credit:- Input tax credit on account of
integrated tax shall first be utilised towards payment of integrated tax, and
the amount remaining, if any, may be utilised towards the payment of central
tax and State tax or Union territory tax, as the case may be, in any order.
Provided that the input tax credit on account of central tax, State tax or
Union territory tax shall be utilised towards payment of integrated tax,
central tax, State tax or Union territory tax, as the case may be, only after
the input tax credit available on account of integrated tax has first been
utilised fully.
As per
the Circular No: 98/17/2019 dated 23 April 2019, it has been clarified that- As
per the provisions of Section 49 of the CGST Act, credit of integrated tax has
to be utilised first for payment of integrated tax, then Central tax and then
State tax, in that order mandatorily.
This led
to a situation, in certain cases, where a taxpayer has to discharge his tax
liability on account of one type of tax (say State tax) through electronic cash
ledger, while the input tax credit on account of other types of tax (say
Central tax) remains unutilised in electronic credit ledger.
The
newly inserted rule 88A in the CGST Rules allows utilisation of input tax
credit of integrated tax towards the payment of Central tax and State tax, or
as the case may be, Union Territory tax, in any order subject to the condition
that the entire input tax credit on account of integrated tax is completely
exhausted first before the input tax credit on account of Central tax or
State/Union Territory tax can be utilised.
Conditions - Rule
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 the such
restriction.”
Time - After the amendment made in Section 16(4)
through the Finance Act, 2022, the words “due date of furnishing of the return
under section 39 for the month of September” was replaced with “Thirtieth day
of November”. It means ITC can be availed till 30th November of the subsequent
year.
Here Point to be noted time is given for ITC
availment, not for ITC utilisation. Hence there is no time boundation on
proper ITC once availed.
Rule 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.
From the
plain readings of both provisions, we can clearly see there is manner,
condition & time given in the section to use but no word or words
restriction used in the section However Rule 86B is clearly a restriction imposing
on utilising of ITC, which is ultra-vires of the Section.
Author’s
Opinion: Rule 86B is Void-ab-initio.
Advise
Government: If my opinion is correct , Please make an amendment in section and
add word restrictions(s).
