Guidelines on rule 86A

CBEC-20/16/05/2021-GST
Government of India 
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing

New Delhi, dated 2nd November,2O2l

To,

 The Principal Chief Commissioners / Chief Commissioners / Principal Commissioners /
             Commissioners of Central Tax (All)
             The Principal Directors General / Directors General (All)

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 Grounds for disallowing debit ofan amount from electronic credit ledger:

3.1.1 Rule 86A ofthe Rules is reproduced hereunder for reference:

(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-

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. without 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,

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.

(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. ”

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 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; 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. 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:

Total amount of ineligible or fraudulently availctl inPut tax creditOfficer to disallow debit of amount from electronic credit ledger under rule 86A
Not exceeding RuPees I croreDeputy Commissioner/ Assistant Commissioner
Above Rupees I crore but not
exceeding Rs 5 crore
Additional Commissioner/ Joint Commissioner
Above Rs 5 crorePrincipaI 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. 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.

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’

3.4 Allowing debit of disallowed/ restricted credit under sub-rule(2) of Rule 86A:

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. 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.

(Sanjay Mangal)
Principal Commissioner (GST)

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’

Download Pdf –Guidelines on Rule 86A (1)

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