Evidence must for blocking input tax credit, says new guideline

NEW DELHI:  After apprehension from the business group over blocking of their input tax credit, the Central Board of Indirect Taxes and Customs (CBIC) has come out with detailed guidelines on blocking of tax credit by GST field officers, saying that such blocking should be on the basis of ‘evidence’ and not out of ‘suspicion’.

“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 of all the facts of the case is important to determine cases(s) fit for exercising power under rules 86A,” a guideline issued by CBIC said.

The guideline dated November 2 was issued after several businesses had flagged the concern to the ministries over harassment by tax officials. 

Till early last month, taxmen had blocked Rs 14,000 crore worth of input tax credit (ITC) of 66,000 businesses under this rule and many more were issued notices. Businesses requested that this decision to block should not be done arbitrarily.

The guidelines have laid down five specific circumstances which can be used by tax officials to block credits, including availment of credit without any invoice or any valid document and availing of credit by purchasers on invoices on which GST has not been paid by sellers.

The guideline said the commissioner, or an officer authorised by him, not below the rank of assistant commissioner, must form an opinion for blocking of input tax credit (ITC) only after “proper application of mind” considering all the facts of the case.

For blocking of ITC above Rs 5 crore, principal commissioner/ commissioner will take a decision.

Where the monetary amount is in the range of Rs 1-5 crore, additional commissioner or joint commissioner will take a decision, while for those less than Rs 1 crore deputy commissioner/ assistant commissioner rank officer will take decision on ITC blocking.

The government had introduced Rule 86A in GST rules in December 2019 giving powers to taxmen to block the ITC available in the electronic credit ledger of a taxpayer if the officer has “reasons to believe” that the ITC was availed fraudulently.

The CBIC in its guidelines added that remedy of disallowing debit of amount from electronic credit ledger being, by its nature, extraordinary, has to be resorted to with utmost circumspection and with maximum care and caution.

Taxing teaser

• Till early October, taxmen had blocked Rs 14,000 crore worth of input tax credit of 66,000 businesses.

• New guidelines have laid down five specific circumstances which can be used by tax officials to block credits.

• For blocking of ITC above Rs 5 crore, principal commissioner/ commissioner will take a decision.

• Additional commissioner or joint commissioner will take a decision where the monetary amount is in the range of Rs 1-5 crore.

• For those less than Rs 1 crore, deputy commissioner/ assistant commissioner rank officer will take decision on ITC blocking.