The Central Board of Indirect Taxes and Customs (CBIC) has notified certain changes to the Goods and Services Tax (GST) Rules, bringing in stringent conditions for getting GST registration as well as for businesses to settle tax liability using input tax credit.
The CBIC has introduced Rule 86B in GST Rules, to be applicable from January 1, 2021, which restricts use of input tax credit for discharging GST liability to 99 per cent.
“… The registered person shall not use the amount available in electronic credit ledger to discharge his liability towards output tax in excess of 99 per cent of tax liability, in cases where the value of taxable supply … in a month exceeds Rs 50 lakh,” the CBIC said.
However, this restriction will not apply where the managing director or any partner has paid more than Rs 1 lakh as income tax or the registered person has received a refund amount of more than Rs 1 lakh in the preceding financial year on account of unutilised input tax credit.
Further, the CBIC has amended GST rules restricting filing of outward supply details in GSTR-1 for business that have not paid tax for the past periods by filing GSTR 3B.
So far, non-filing of GSTR 3B resulted in blockage of e-way bill but will now result in GSTR 1 blockage as well.
“In order to curb the GST fake invoice frauds, the Govt on the recommendations of the GST Council’s Law Committee has issued a notification to deal with the menace of fraudsters who avail & pass on ineligible ITC by fake or fly-by-night firms,” Finance Minister Nirmala Sitharaman tweeted.
The CBIC said it has booked about 12,000 cases of input tax credit (ITC) fraud and arrested 365 persons in such cases so far. During the last six weeks alone, more than 165 fraudsters have been arrested.
“There have been some misinformation on the recent rule changes on the social media causing confusion among the genuine taxpayers,” the CBIC said while issuing a “myth v/s fact” list for the notification.
With regard to concerns over registration cancellation, the CBIC said, “The GST laws passed by the Parliament and state legislatures provide that GST registration is liable to be cancelled for those who have not filed 6 or more returns. It is, therefore, wrong to say that the cancellation will be done without reasons.”
It further said that only in fraudulent cases where there are significant discrepancies based on data analytics and sound risk parameters, and not mere clerical errors, the action of suspension and cancellation will be taken up.
“Precise targeting of fraudsters is being done only in specific cases, after doing a comprehensive analysis, using advanced data analytics tools etc. Further, multiple risk indicators are checked and only then few high-risk entities are selected,” the CBIC said.
AMRG & Associates Senior Partner Rajat Mohan said, “These changes indicate that government is grappling with lower tax collections and high tax evasions, burden of which will again be on honest taxpayers.”
EY Tax Partner Abhishek Jain said the government has put restrictions on seamless input credit utilisation with introduction of Rule 89B, which blocks utilisation of ITC beyond 99 per cent of the output liability, for businesses having taxable turnover of more than Rs 50 lakh per month.
“With the government providing reasonable exceptions to this rule, the idea remains to prevent misutilisation of credit by businesses taking fake credits,” Jain added.
With regard to blocking of GSTR-1 filing, Jain said “the government’s idea here seems to be to curb input tax credit passing by businesses which have otherwise not paid their GST liability.”
The CBIC has also notified authentication of Aadhaar number or physical verification of business premises for the purposes of obtaining GST registration, a move aimed at checking fraudulent registrations just for the purpose of passing on ITC.
Also, the validity of electronic way bill provisions has been amended by the CBIC according to which the e-way bill will be valid for one day for every 200 km of travel, as against 100 km earlier.