CBIC issued Guidelines for disallowing debit of electronic credit ledger under Rule 86A

In several circumstances, Hon’ble High Courts have stressed the importance of establishing rules for using Rule 86A. . In view of the same The Central Board of Indirect Taxes & Customs (CBIC) vide Circular No CBEC-20/16/05/2021-GST/1552 dated 2nd November 2021 issued guidelines for disallowing debit of electronic credit ledger under Rule 86A of the Central Goods & Services Tax Rules, 2017 (“CGST Rules”).

According to Rule 86A of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as “the Rules”), in certain circumstances, the Commissioner or an officer authorised by him may not allow debit of an amount equivalent to an input tax credit available in the electronic credit ledger if the Commissioner or an officer authorised by him has reasonable grounds to believe that the credit has been fraudulently obtained or is ineligible.

Doubts has been raised relating to the disallowance of debit of input tax credit from the computerised credit ledger under Rule 86A of the Rules. Furthermore, in several circumstances, Hon’ble High Courts have stressed the importance of establishing rules for using Rule 86A. In light of the foregoing, the following guidelines regarding the exercise of power under Rule 86 of the Rules are hereby issued:

Grounds for disallowing debit of an amount from electronic credit ledger:

Rule 86A of the Rules is reproduced hereunder for reference:

“86A. Conditions of use of amount available in electronic credit ledger.-

(1) The Commissioner or an officer duly authorised by him in this regard, not lower than the level of Assistant Commissioner, if there are reasonable grounds to assume that an input tax credit available in the computerized credit ledger has been unlawfully obtained or is ineligible in the amount of

a) Input tax credit has been claimed on the basis of tax invoices, debit notes, or any other document specified in 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,

The Commissioner or an officer 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.”

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