The Goods and Service Tax Department (GST) of Kerala issued the guidelines for blocking of Input Tax Credit under Rule 86A of SGST Rules, 2017.
Rule 86A in the CGST Rules vide notification No 75/2019 has been introduced w.e.f. December 26, 2019, to empower the revenue to impose additional conditions or restrictions on the use of the amount of input tax credit available in the electronic credit ledger. This rule empowered the Department to restrict the credit of any person in certain cases where there is reason to believe that ITC is availed fraudulently or is ineligible.
In order to streamline the process of blocking/unblocking of ITC the State has issued guidelines.
The Joint Commissioners of state tax has been authorized to perform the functions to be performed by the Commissioner of State Tax under Rule 86A within their respective jurisdiction.
Detailed SOP has already been issued prescribing the manner of blocking /unblocking of ITC in the portal.
In Rule 86A, 4 scenarios have been mentioned for blocking ITC. Out of the 4 scenarios, more importance has to be given to situations (a) and (c). It should be ensured that no input tax credit is availed on the strength of tax invoices or debit notes or any other documents prescribed under rule 36 issued by a registered person who has been found non-existent or not conducting any business from the place for which registration has been obtained or without receipt of goods or services or both.
With regard to (b), major cases should be identified from the red flag reports or other reports available in the backend. while taking figures from 2A, it shall be ensured that the 2A is updated. Such blocking shall be in terms of Rule 36(4) of the KSGST AND CGST rules and Circular No. 123/42/2019-GST dated 11th November 2019 of CBIC.
In respect of cases initiated by the Jurisdictional officers/proper officers, the request for blocking of credits shall be sent to the District Joint Commissioners concerned (Authorized officers), who will examine the same and will take necessary steps to block the ITC in the portal as per the SoP issued.
In respect of the requests for blocking ITC received from CBIC, the same has to be received and processed by Economic Intelligence Wing in the office of the Commissioner of State Taxes and they will examine the case and if found justified, it shall be forwarded to the authorized District Joint Commissioner concerned who has the jurisdiction to block ITC of the said taxpayer.
Any requests from State Officers to block ITC pertaining to CBIC administered taxpayers should be sent to the Economic Intelligence Wing in the office of the Commissioner and they will process the same and forward it to the CGST Commissionerates concerned for necessary action.
As stated in the rules, the credit blocked shall be the value equivalent to credit availed fraudulently or ineligible credit. The authorized officer shall determine the amount equivalent to such fraudulent credit and shall block usage of such amount in the portal.
The guidelines says that the authorized officer shall inform such blocking/ restriction of credit to the officer under whom the taxpayer is registered and also to the taxpayer whose credit has been blocked. Such intimation shall be sent through e-mail to the registered mail id as soon as possible and also shall serve a hard copy of order to the taxpayer with proper acknowledgment.
“If there is Nil balance or insufficient balance in the tax head to which the credit is to be blocked, the credit available in other tax heads, equivalent to the amount fraudulently availed, can be blocked. In such a scenario, it should be kept in mind that this shall be subject to limitations imposed by law on the cross-utilization of ITC. That is, as cross utilization of CGST credit to SGST liability and vice versa is not permitted by GST Laws. In case of blocking of CGST credit availed fraudulently, blocking of SGST credit shall not be done, if no credit is available in CGST tax head. As such, for blocking of IGST credit availed fraudulently, if there is no credit balance in IGST tax head, the amount equivalent to the credit fraudulently availed can be blocked from the ITC credit available in CGST head and/or SGST head and vise versa,” the guidelines added.
Any representation received from the taxpayer against blocking of ITC shall be disposed of by the authorized officer within a reasonable time (say 15 days). The authorized officer, after considering the representation, may on being satisfied that the conditions stipulated under Rule 86A no longer exists, or found to be contrary to the belief that led to the blocking, unblock the credits as per Rule 86A (2) in the manner specified in the SOP, under intimation to concerned registered person and the jurisdictional proper officer.
Blocking of credit under Section 86A is an emergency measure to prevent the taxpayer from using the credit availed fraudulently or ineligible credit taken. Hence nothing prevents the proper officer from taking any other suitable actions under any other provisions of GST laws including determination of tax under section 73, 74, demand and recovery, provisional attachment of property, etc.
ITC blocking is a temporary step and should not be seen as equivalent to the recovery of tax. Action under section 73/74 is the full and final demand creation exercise as per GST Law. Both are mutually exclusive and SCN under section 73/74 should be issued immediately upon completion of investigation in all cases.