Officer of the Commissioner of Commercial Taxes, Chennai has issued Circular No. 8/2020 dated September 21st, 2020 pertaining to blocking of credits under Rule 86A & procedure to be followed with supplementary instructions w.r.t earlier Circular No. 3/2020 issued before by the same department dated March 23rd, 2020.
Clarifications have been sought by the Joint Commissioners of Territorial Divisions based on the inputs of the authorized officer under Rule 86A while undertaking blocking of credit under the Rule 86A. The issues faced by them have been classified as below –
- NIL or Zero balance in all heads of tax in credit ledger.
- Insufficient balance in the relevant heads of credit ledger to cover the entire amount to be blocked
- Nil or insufficient balance in the head to be blocked but sufficient balance in other head
- When certain invoices are not reflected in GSTR-2A, but available in the E-way bill system, etc., whether ITC has to be blocked for these cases, as it would appear that the dealer may not have taken the credit
- Whether Section 73 / 74 action is to be initiated in case of Nil, balance / insufficient balance in the credit ledger
The following instructions have therefore been issued as a supplementary to Circular No. 03/2020.
From the readings of Rule 86A, it is indicated that blocking of credit is related to an amount equivalent to such fraudulent or ineligible credit and not such credit itself.
- Therefore, in respect of zero balance in all heads of tax in credit ledger because of which no blocking could be done, if the taxpayer is functional, the blocking of amount equivalent to such credit can be resorted to as and when credit accumulates in his electronic credit ledger and this can be done only if the TP is monitored continuously. If the taxpayer is not functional and with no credit balance, it is impossible to block future accumulated credits too. But other actions as narrated in Para No.5 below may be taken.
- In the case of insufficient balance in the relevant heads of credit ledger to cover the entire amount to be blocked, the first step would be to block the amount available as on the date of blocking and the balance amount has to be blocked as and when the credits start to accumulate in the credit ledger of the taxpayer. Further, other actions as narrated in Para No.5 below may be taken
- In the case where there is nil balance or insufficient balance in the heads of tax to be blocked but credits are available in other heads, on the same analogy as above, blocking of amount equivalent to such credit lying in one tax head in lieu of another (to which such credit actually pertains to) may be resorted to. However, it is to be noted that blocking in heads in the credit ledger other than the heads for which such blocking is to be done, is subject to limitations imposed by the cross-utilization of ITC. In other words, for a request to block CGST credit, the available credit in SGST head cannot be blocked and vice versa. Further, when SGST and CGST credits are to be blocked and amounts are not available in those heads in the electronic credit ledger of the taxpayer, if credit is available only in IGST head, then the IGST credit could be blocked equal to such CGST and SGST amounts to be blocked. Similarly, when IGST credit is to be blocked but no amount is available and credits are available only in CGST / SGST heads, then blocking to such extent can be done in the CGST / SGST heads.
- As per Para 7 of the circular no.3/2020 read with the provisions of Rule 86A, it can be seen that the officer authorized to block credit is sufficiently empowered to form his belief based on reasons as to whether the credits get covered under the category mentioned under the rule provisions or not. Therefore, if in the opinion of the authorized officer, any credit is not malafide, he is free to decide not to block the credit; however, it is his sole responsibility to do so based on the material evidences to believe the contra and not on any surmise that absence of invoice details in GSTR-2A could mean that the dealer has not availed credit, etc.
- Further, with regard to taking any other action, viz., under Section 74, etc., it is clarified that blocking of credit under Rule 86A is an emergency measure to prevent the taxpayer from using fraudulent or wrong credits taken under the circumstances enlisted under the provision. However, this does not preclude or impede any other action that may be taken under other provisions of GST laws including provisional attachment of property, demand, and recovery, etc. It is once again emphasized that any issues arising during the task of blocking do not have any connection with any other action under the GST Law.
The complete circular can be accessed at: http://www.a2ztaxcorp.com/wp-content/uploads/2020/09/Blocking-of-credit-supplementary-circular.pdf