Rule 86A(1)

The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner,

having reasons to believe that ITC in ECrL has been fraudulently availed or is ineligible in as much as

a) ITC availed on tax invoices/DN or other document prescribed u/r 36-

i. issued by a RP who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or

ii. without receipt of goods or services or both; or

b) ITC availed on tax invoices/DN or other document prescribed u/r 36, tax charged on which has not been paid to the Government; or

c) RP availing ITC has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or

d) RP availing any ITC is not in possession of a tax invoice/DN or other document prescribed u/r 36,

may, for reasons to be recorded in writing,

not allow debit of an amount equivalent to such credit in ECrL

for discharge of any liability u/s 49 or for claim of any refund of any unutilised amount.

Guidelines on Rule 86A dated 02-11-2021

3.1.2

Reason for believe must be based only on grounds provided in Rule 86A(1).

Perusal of the rule makes it clear that the Commissioner, or an officer authorised by him, not below the rank of Assistant Commissioner,

must have "reasons to believe" that credit of input tax available in the e-CrL is either ineligible or has been fraudulently availed by the registered person, before disallowing the debit of amount from e-CrL.

3.1.3

Officer must form an opinion and should apply proper application of mind

The Commissioner, or an officer authorised by him, must form an opinion for disallowing debit of an amount from e-CrL only after proper application of mind considering all the facts of the case, including the nature of prima facie fraudulently availed or ineligible ITC and whether the same is covered under the grounds mentioned u/sr 86A(1);

ITC involved and whether disallowing such debit of e-CrL of a person is necessary for restricting him from utilizing/ passing on fraudulently availed or ineligible ITC to protect the interests of revenue.

3.1.4

Power of disallowing debit from e-CrL must not be exercised in a mechanical manner and careful examination of all the facts of the case is important

It is reiterated that the power of disallowing debit of amount from e-CrL must not be exercised in a mechanical manner and careful examination of all the facts of the case is important to determine case(s) fit for exercising power under rules 86A. The remedy of disallowing debit of amount from electronic credit ledger being, by its very nature. extraordinary' has to be resorted to with utmost circumspection and with maximum care and caution it contemplates an objective determination based on intelligent care and evaluation as distinguished from a purely subjective consideration of suspicion.

The reasons are to be on the basis of material evidence available or gathered in relation to fraudulent availment of input tax credit or ineligible input tax credit availed as per the conditions/grounds u/sr 86A.

3.3

Procedure for disallowing debit of e-CrL /blocking credit u/r 86(A)

3.3.1

The amount of fraudulently availed or ineligible ITC shall be prima facie ascertained based on material evidence available or gathered on record.

Such "Reasons to believe" shall be duly recorded by the concerned officer in writing on file, before he proceeds to disallow debit of amount from e-CrL of the said person.

3.3.2

The amount disallowed for debit from e-CrL should not be more than the amount of ITC which is believed to have been fraudulently availed or is ineligible, as per the conditions/ grounds mentioned u/sr 86A(1).

3.3.3

The action by the commissioner or the authorized officer, as the case may be, to disallow debit from electronic credit ledger of a registered person, is informed on the portal to the concerned registered person, along with the details of the officer who has disallowed such debit'

Guidelines on Rule 86A dated 02-11-2021

3.2.1

The Commissioner (including Principal Commissioner) is the proper officer for the purpose of exercising powers u/r 86A.

However commissioner/ Principal commissioner can also authorize any officer subordinate to him, not below the rank of Assistant Commissioner' to be the proper officer for exercising such power u/r 86A.

It is advised that Commissioner/ Principal Commissioner may authorize exercise of powers u/r 86A based on the following monetary limits as mentioned below:

3.2.2

The Additional Director General /Principal Additional Director General of DGGI can also exercise the powers assigned to the Commissioner u/r 86A. The monetary limits for authorization for exercise of powers u/r 86A to the officers of the rank of Assistant Director and above of DGGI by the Additional Director General /Principal Additional Director General may be same as mentioned for equivalent rank of officers in the table in para 3.2.1 above.

3.2.3

Where during the course of Audit u/s 65 or 66 of CGST Act,2017 it is noticed that any ITC has been fraudulently availed or is ineligible as per the grounds mentioned u/sr 86(1), which may require disallowing debit of e-CrL, the concerned Commissioner/ Principal Commissioner of CGST Audit Commissionerate may refer the same to the jurisdictional CGST Commissioner for examination of the matter for exercise of power under rule 86A.

Rule 86A(3)

Such restriction shall cease to have effect after the expiry of 1 year from the date of imposing such restriction

Rule 86A(2)

The Commissioner, or the officer authorised by him u/sr (1)

may, upon being satisfied that conditions for disallowing debit of ECrL as above, no longer exist, allow such debit.

Guidelines on Rule 86A dated 02-11-2021

3.4.1

The commissioner or the authorized officer either on his own or based on the submissions made by the taxpayer with material evidence thereol, may examine the matter afresh and on being satisfied that the ITC, initially considered to be fraudulently availed or ineligible as per conditions of sub-rule (l) of rule 86A, is no more ineligible or wrongly availed, either partially or fully, may allow the use of the credit' so disallowed/restricted, up to the extent of eligibility, as per powers granted u/sr 86A(2).

Reasons for allowing the debit of electronic credit ledger, which had been earlier disallowed, shall be duly recorded on file in writing, before allowing such debit of electronic credit ledger.

3.4.2

The restriction u/r 86A(1) shall cease to have effect after the expiry of 1 year from the date of imposing such restriction. After 1 year, RP would be able to debit ITC so disallowed, subject to any other action that may be taken against the registered person.

3.4.3

As the restriction on debit of e-CrL u/sr 86A(1) is resorted to protect the interests of the revenue and the said action also has bearing on the working capital of the registered person, it should be endeavored that in all such cases' the investigation and adjudication are completed at the earliest, well within the period of restriction, so that the due liability arising out of the same can be recovered from the said taxable person and the purpose of disallowing debit from electronic credit ledger is achieved'