The recent news highlighted guidelines on the blocking of tax credit issued by the Central Board of Indirect Taxes and Customs (CBIC). These directives instruct Goods and Services Tax (GST) field officers to base their decisions on ‘material evidence’ rather than mere ‘suspicion’. This development pertains to crucial aspects of the Goods and Services Tax, such as the Input Tax Credit (ITC), its exceptions, and the procedure for claiming it.
Input Tax Credit Explained
ITC is a provision that allows businesses to reduce their tax liability by considering the tax paid on purchases during sales tax calculation. For instance, while paying tax on output, the tax already paid on inputs can be deducted, settling only the balance amount. However, several exceptions apply. A business operating under the composition scheme, for instance, cannot avail of ITC. Similarly, ITC claims are not applicable for personal use or for goods that are exempt from GST.
The Composition Scheme
To exempt taxpayers from complex GST formalities, a scheme under GST termed the Composition Scheme is available. Any taxpayer with a turnover of less than Rs. 1.5 crores can opt for this scheme.
Claiming Input Tax Credit Procedures
According to the amended Rule 36 (4) of the Central GST (CGST) Rules, 2017, ITC can be availed only when a goods supplier updates and uploads supply details through each bill online.
New Guidelines Issued
The new guidelines define specific circumstances that necessitate the blocking of ITC by a senior tax officer. Notable conditions involve the availment of credit without an invoice or valid document and the availment of credit by purchasers on invoices for which GST has not been paid by sellers.
In addition, the commissioner, or an officer authorised by him above the rank of assistant commissioner, is required to form an opinion after considering all the case facts. Rule 86A, introduced in GST rules in December 2019, grants taxmen the power to block the ITC available in a taxpayer’s electronic credit ledger if fraudulent availment of ITC is suspected.
These guidelines also establish monetary limits for divisions of powers between commissions, joint commissioners, and assistant commissioners concerning tax credit blocking. A taxpayer will be informed about any ITC blocking on the GST portal, with the officer’s details who implemented it also provided.
Central Board of Indirect Taxes and Customs (CBIC)
Part of the Department of Revenue under the Ministry of Finance, CBIC handles policy formulation regarding the levy and collection of customs, central excise duties, CGST, and Integrated GST (IGST). Earlier known as the Central Board of Excise and Customs (CBEC), it was renamed as CBIC in 2018 following the introduction of GST. The GST law encompasses five acts, including the Central Goods and Services Tax Act, 2017, and the State Goods and Services Tax Act, 2017.