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

cBEC-20/r610s/2021-GSr / Government of India I ISSL o t lr rl >o'>t Ministry of Finance Department of Revenue Central Board of Indirect Taxes and Customs GST Policy Wing To, Madam/Sir,

Subject: Guidelines for disallowing debit of electronic credit ledger under Rule 86A of the

CGST Rules, 2017 -Reg. Rule 86,4 of the Central Goods and Services Tax Rules, 2017 (hereinafter retbrred to as "the Rules") provides that in certain circumstances, Commissioner or an officer authorised by him, on the basis of reasonable belief that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible, may not allow debit ofan amount equivalent to such credit in electronic credit ledger. 2, Doubts have been raised by the field formations on various issues pertaining to disallowing debit of input tax credit from electronic credit ledger, under rule 86,4 of the Rules. Further, Hon'ble High Courts in some cases have emphasized the need for laying down guidelines for the purpose of invoking rule 86A. In view of the above, the following guidelines are hereby issued with respect to exercise ofpower under rule 86,4 ofthe Rules: 3.1.1 Rule 86A ofthe Rules is reproduced hereunder for reference: "86A.

In view of the above, the following guidelines are hereby issued with respect to exercise ofpower under rule 86,4 ofthe Rules: 3.1.1 Rule 86A ofthe Rules is reproduced hereunder for reference: "86A. Conditions ofuse ofamount available in electronic credit ledger.- (1) The Commissioner or an fficer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tox available in the electronic credit ledger has been.fraudulently availed or is ineligible in as much as- Page 1 of 5 New Delhi, dated 2nd November,2O2l The Principal Chief Commissioners / Chief Commissioners / Principal Commissioners / Commissioners of Central Tax (All) The Principal Directors General / Directors General (All) 3.1 Grounds for disallowing debit ofan amount from electronic credit ledger:

a) the credit of input tax has been ayailed on the strength o-f 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.

ocument 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. rvithout receipt oJ'goods or services or both; or b) the credit of input tax has been availed on the strength oJ 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 poid to the Government; or c) the registered person ovailing 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 rsr any other document prescribed under rule 36, (2)The Commissioner, or the fficer authorised by him under sub-rule (l) may, upon being satisfred 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.

ectronic 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. " 3.1.2 Perusal of the rule makes it clear that the Commissioner, or an officer authorised by him, not below the rank of Assistant Commissioner, must have "reasons to believe" that credit of input tax available in the electronic credit ledger is either ineligible or has been fraudulently availed by the registered person, before disallowing the debit of amount from electronic credit ledger of the said registered person under rule 86,4. The reasons for such belief must be based only on one or more ofthe following grounds: a) The credit is availed by the registered person on the invoices or debit notes issued by a supplier, who is found to be non-existent or is found not to be conducting any business from the place declared in registration. b) The credit is availed by the registered person on invoices or debit notes, without actually receiving any goods or services or both. c) The credit is availed by the registered person on invoices or debit notes, the tax in respect may, Jbr 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 19 or for claim of any reJund of ony unutilised amount. Page 2 of 5

g, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 19 or for claim of any reJund of ony unutilised amount. Page 2 of 5

of which has not been paid to the government' d)Theregisteredpersonclaimingthecreditisfoundtobenon-existentorisfoundnottobe conducting any business from the place declared in registration' e)Thecreditisavailedbytheregisteredpersonwithouthavinganyinvoiceordebitnoteor any other valid document for it. 3.1.3 The Commissioner. or an officer authorised by him, not below the rank of Assistant commissioner, must form an opinion for disallowing debit of an amount from electronic credit ledgerinrespectofaregisteredperson.onlyafterproperapplicationolmindconsideringallthe facis of the case, including the nature of prima facie fraudulently availed or ineligible input tax credit and whether the same is covered under the grounds mentioned in sub-rule (l) of rule 86A' as discussed in para 3.1.2 above; the amount of input tax credit involved;

iled or ineligible input tax credit and whether the same is covered under the grounds mentioned in sub-rule (l) of rule 86A' as discussed in para 3.1.2 above; the amount of input tax credit involved; and whether disallowing such debit of electronic credit ledger of a person is necessary for restricting him from utilizing/ passing on fraudulently availed or ineligible input tax credit to protect the interests of revenue. 3.1.4 It is reiterated that the power of disallowing debit of amount from electronic credit ledger must not be exercised in a mechanical manner and careful examination ofall the facts ofthe case isimportanttodeterminecase(s)fitforexercisingpowerunderrules6A.Theremedyof disallowing debit of amount from electronic credit ledger being, by its very nature. extraordinary' has to be resorted to with utmost circumspection and with maximum care and caution lt contemplates an objective determination based on intelligent care and evaluation as distinguished fromapurelysubjectiveconsiderationofsuspicion.Thereasonsaretobeonthebasisof material evidence available or gathered in relation to fraudulent availment of input tax credit or ineligibleinputtaxcreditavailedaSpertheconditions/groundsundersub.rule(l)ofrule86A. 3.2 Proper authority for the purpose of Rule 86A: 3.2.1 The Commissioner (including Principal Commissioner) is the proper officer for the purpose ofexercising powers for disailowing the debit of amount from electronic credit ledger of u registe."d person under rule 864. However.

ing Principal Commissioner) is the proper officer for the purpose ofexercising powers for disailowing the debit of amount from electronic credit ledger of u registe."d person under rule 864. However. commissioner/ Principal commissioner can also auth-orize any officer subordinate to him, not below the rank of Assistant Commissioner' to be the proper officer for exercising such power under rule 86A' It is advised that Commissioner/PrincipalCommissionermayauthorizeexerciseofpowersunderrule86Abased on the following monetary limits as mentioned below: Officer to disallow debit of amount credit ledger under rule 86A from electronic Total amount of ineligible fraudulently availctl inPut credit or tax I m s S e oll C m o r m s S () e l-l u C u-l () e D p Not exceeding RuPees I crore Page 3 of 5 Assistant

Above Rupees I crore but not exceeding Rs 5 crore Additional Commissioner/ Joint Commissioner Above Rs 5 crore Princi I Commissioner/ Commissioner 3.2.2 The Additional Director General /Principal Additional Director General of DGGI can also exercise the powers assigned to the Commissioner under rule 86A.

rore Princi I Commissioner/ Commissioner 3.2.2 The Additional Director General /Principal Additional Director General of DGGI can also exercise the powers assigned to the Commissioner under rule 86A. The monetary limits for authorization for exercise of powers under rule 86,4 to the officers of the rank of Assistant Director and above ol DGGI by the Additional Director General /Principal Additional Director General may be same as mentioned for equivalent rank of officers in the table in para 3.2.1 above. 3.2.3 Where during the course of Audit under section 65 or 66 of CGST Act,2017 it is noticed that any input tax credit has been fraudulently availed or is ineligible as per the grorrnds menrioned in sub-rule (l) olrule 86,4, which may require disallowing debit of electronic credit ledger under rule 864, the concerned Commissioner/ Principal Commissioner of CGST Audit Commissionerate may refer the same to the jurisdictional CGST Commissioner for examination ofthe matter for exercise ofpower under rule 86,4. 3.3 Procedure for disallowing debit of electronic credit ledger/blocking credit under Rule 86(A): 3.3.1 The amount of fraudulently availed or ineligible input tax credit availed by the registered person, as per the grounds mentioned in sub-rule ( l) of rule 86.4, shall be prima facie ascertained based on material evidence available or gathered on record.

t tax credit availed by the registered person, as per the grounds mentioned in sub-rule ( l) of rule 86.4, shall be prima facie ascertained based on material evidence available or gathered on record. It is advised that the powers under rule 86,A to disallow debit of the amount from electronic credit ledger of the registered person may be exercised by the Commissioner or the officer authorized by him, as per the monetary Iimits detailed in Para 3.2.1 above. The officer should apply his mind as to whether there are reasons to believe that the input tax credit availed by the registered person has either heen fraudulently availed or is ineligible, as per conditions/ grounds mentioned in sub-rule (1) of rule 864 and whether disallowing such debit of electronic credit ledger of the said person is necessary for restricting him from utilizing/ passing on fraudulently availed or ineligible input tax credit to protect the interests of revenue. Such "Reasons to believe" shall be duly recorded by the concerned officer in writing on file, before he proceeds to disallow debit of amount from electronic credit ledger ofthe said person. 3.3.2 The amount disallowed for debit from electronic credit ledger should not be more than the amount ofinput tax credit which is believed to have been fraudulently availed or is ineligible, as per the conditions/ grounds mentioned in sub-rule (l) ofrule 86A. Page 4 of 5

not be more than the amount ofinput tax credit which is believed to have been fraudulently availed or is ineligible, as per the conditions/ grounds mentioned in sub-rule (l) ofrule 86A. Page 4 of 5

3.3,3 The action by the commissioner or the authorized officer, as the case may be, to disallow debit from electronic credit ledger of a registered person, is informed on the portal to the concerned registered person, along with the details ofthe officer who has disallowed such debit' 3.4Allowingdebitofdisallowed/restrictedcreditundersub-rule(2)ofRule86A: 3.4.1 The commissioner or the authorized officer, as the case may be, either on his own or based on the submissions made by the taxpayer with material evidence thereol, may examine the matter afresh and on being satisfied that the input tax credit, initially considered to be fraudulently availed or ineligible as per conditions of sub-rule (l) of rule 86A, is no more ineligible or wrongly availed, either partially or fully, may allow the use of the credit' so disallowed/restricted, up to the extent of eligibility, as per powers granted under sub-rule (2) of rule 864. Reasons for allowing the debit of electronic credit ledger, which had been earlier disallowed, shall be duly recorded on file in writing, before allowing such debit of electronic credit ledger. 3.4.2 The restriction imposed as per sub-rule ( I ) of rule 86A shall cease to have effect after the expiry of a period oi one year from the date of imposing such restriction.

ectronic credit ledger. 3.4.2 The restriction imposed as per sub-rule ( I ) of rule 86A shall cease to have effect after the expiry of a period oi one year from the date of imposing such restriction. In other words, upon "*piry of on" year from the date of restriction, the registered person would be able to debit input tax credit so disallowed, subject to any other action that may be taken against the registered person. 3.4.3 As the restriction on debit of electronic credit ledger under sub-rule (l) of rule 86A is resorted to protect the interests of the revenue and the said action also has bearing on the working capital of the registered person, it should be endeavored that in all such cases' the investigation and adjudication are completed at the earliest, well within the period of restriction, so that the due liability arising out ofthe same can be recovered from the said taxable person and the purpose of disallowing debit from electronic credit ledger is achieved' 4.Difficulty'ifany,inimplementationoftheaboveguidelinesmaypleasebebroughttothe notice of the Board. Hindi version would follow. br^g,";t,,1 (SanjaY Mangal) Principal Commissioner (GST) )-t Page 5 of 5 Copy to: l. The Joint secretary, GST Council Secretariat, New Delhi. He may consider circulating the same to all states for information and necessary action at their end'