Rule 86A, CGST Rules, 2017, Input Tax Credit and "Electronic Credit Ledger": Tax Department's Petition Dismissed
Recently, the Tax Department has filed a petition against the finding in respect of R.86A of CGST Rules, 2017. R. 86A deals with credit of input tax available in the electronic credit ledger.
Department's petition which was filed with delay has been dismissed in Commissioner of Central Tax and GST Delhi North v. Raghav Agarwal [2025] GCtR 1267 (SC).
It is useful to note that it was held in Best Crop Science Pvt Ltd v. Principal Commissioner, CGST Commissionerate [2024] GCtR 2704 (Delhi) that "Rule 86A(1) of the Central Goods and Services Tax Rules, 2017 does not contemplate an order, the effect of which is to require a taxpayer to replenish his ECL with valid availment of ITC, to the extent of ITC used in the past, which the Commissioner or an officer authorized by him has reasons to believe, was fraudulently availed or was ineligible. Such an interpretation would in effect amount to construe an order under Rule 86A(1) of the Rules as an order for recovery of tax. This is obvious because the taxpayer would now have to incur a larger cash outflow for payment of taxes as he would be denied utilization of validly availed ITC, which he would require to accumulate to compensate for the ITC availed and utilized which the Commissioner or an officer authorized by him, has reasons to believe was fraudulently availed or was ineligible."
It was held that Rule 86A of the Rules is not a machinery provision for recovery of tax or dues under the CGST Act. It is not a part of the scheme of the machinery provisions for assessment and determination of the tax and dues as payable under the CGST Act. It is an emergent measure for protection of revenue by temporarily not allowing debit of available ITC in the ECL, which the Commissioner or an officer authorized by him has reasons to believe has been wrongfully availed.
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