CGST (Ninth Amendment) Rules 2019

CGST (Ninth Amendment) Rules 2019

The CGST (Ninth Amendment) Rules, 2019 were introduced by the Government of India (GoI) to check misuse of Input Tax Credit (ITC). The GoI observed that the benefit of ITC is misused by providing fictitious invoices, raising invoices from companies which have closed the business, and other methods. To address the issue, the Central Board of Indirect Taxes and Customs (CBIC) issued Notification No.75/2019 on 26th December 2019. The notification states that the CGST (Ninth Amendment) Rules, 2019 will be applicable to all assessees with effect from 1st January 2020.

The notification mentions the rules for determining whether the assessee has misused the benefit of ITC. The rules also provide the powers which are available to the Commissioner of GST in case there is a misuse of ITC. If an assessee has misused ITC, the officer is given the power to disallow the amount available in the electronic credit ledger. The officer can recall the restriction once the circumstances of default have been rectified by the assessee.

General Conditions for Availing ITC

  • The assessee can avail the ITC on all purchases made to carry on the business. Purchases of capital goods are also eligible for claiming ITC. There is no proportionate methodology for claiming ITC on capital goods. In case the assessee has adequate GST liability, the entire amount of ITC on capital inputs can be claimed at once.
  • The assessee may be letting out properties to Special Economic Zones (SEZs). When goods or services are supplied to SEZ, the supply is treated as Zero Rated Supply. At the time of making a Zero Rated Supply, the assessee has the option to pay GST along with claiming a refund. Alternatively, the assessee may make the supply without raising GST in the invoice. The facility of ITC refund is also available for Zero Rated Supplies. The input goods may be used by the assessee partly towards Zero Rated Supplies and partly towards exempt supplies. In such cases, ITC available as refund should be proportionately adjusted. The adjustment is made since a refund of ITC is allowed selectively. The refund is allowed only for the proportion of supply made to an SEZ.
  • The assessee may be claiming depreciation on the GST on the purchase, as per Income Tax Act. In case the assessee is claiming depreciation, ITC on purchase of capital goods is not allowed.
  • The input purchased may be used partly for business and partly for other purposes. In such cases, ITC claimed should be proportionately adjusted. The adjustment is made since ITC is allowed only for the proportion of goods used for the business.
  • The assessee should not have made a default in filing any GST Return during the financial year.

Circumstances for Default

Commissioner or Assistant Commissioner of GST is the competent officer who is empowered to take action for GST-related offences. Action can be initiated against assessees who are in default. An assessee can be considered to have committed default in the following circumstances:

  • When the assessee has not filed GST returns before the due date
  • When the assessee has not paid GST before the due date
  • When the assessee has availed ITC for the following items:
    • Conveyance charges incurred on making non-taxable supplies
    • Expenditure incurred on the purchase of food and beverages, catering services, health-care services, and cosmetic services
    • Amount spent as membership fees toward gymnasiums and sports associations
    • Amount of reimbursement made to employees who are availing of Leave Travel Concession (LTC)
  • When the assessee is claiming ITC on works contracts services supplied for construction of an immovable property (However, when the works contract service used as an input service for further supply of works contract service, ITC will be allowed.)
  • When the assessee has misused the ITC available in the electronic credit ledger

Circumstances for Misuse of ITC

Misuse of ITC refers to claiming ITC when it is not available to the assessee as per the relevant legal provisions. In the following circumstances, the assessee is regarded as misusing ITC:

  • The assessee is allowed to avail of ITC based on tax invoices issued by a registered person. The registered person may have specified the applicable GST Identification Number (GSTIN). However, the registered person may not be conducting any business from the address recorded in the GST database. The assessee should not try to claim ITC based on tax invoices issued by a person not conducting business. Receipt of a tax invoice from a supplier who is not doing business is considered as a misuse. Claiming ITC based on invoices issued by a supplier who is not doing business will also be treated as a misuse of ITC.
  • The assessee can claim ITC based on tax invoices obtained from a registered person. The registered person should be engaged in the supply of taxable goods and services. However, the registration of the supplier may have been carried out to create a fictitious input service distributor. In such cases, the supplier is regarded as a non-existent supplier. Receipt of a tax invoice from a non-existent supplier is considered as an offence. Claiming ITC based on invoices issued by the non-existent supplier will also be treated as a misuse of ITC.
  • The assessee should not try to claim ITC when the tax invoice issued by the supplier does not show the following particulars:
    • Invoice number as per to the accounting software used by the supplier
    • Date of supply
    • Customer name
    • GSTIN of the supplier and purchaser
    • Shipping and billing address of the supplier and purchaser
    • Harmonized System of Nomenclature (HSN) code
    • Description, quantity and the total value of the goods supplied
    • Discount applicable on the transaction, if any
    • Rate and amount of GST
    • Whether the reverse charge mechanism applies to the transaction
    • Whether the supplier is registered under a composition scheme
    • Signature of the supplier
  • The assessee should not try to claim ITC when the supplier has not remitted the GST to the government. A disallowance of ITC will be made when the GST applicable on the tax invoice has not been paid. The disallowance will be made on an invoice-to-invoice basis. The supplier may have remitted the GST liability on a partial basis. In such circumstances, the amount paid will first be adjusted against the earlier invoices. The supplier may have pending GST obligations towards the government. The implication is that to the extent of unpaid GST, the recipient of the goods or services will not be eligible to claim ITC.
  • The assessee should not try to claim ITC when the supplier is using the registered business to carry on an unrelated business. An unrelated business refers to a business which was not mentioned in the application for the GSTIN. If ITC is claimed for input goods obtained from a dealer in an unrelated business, the claim will be treated as a misuse of ITC.

Action Taken for Default

  • If the officer is satisfied that there is a misuse of ITC, the officer can disallow the amount in the electronic credit ledger. The officer should record in writing the details of misuse committed by the assessee.
  • The officer may be satisfied that the circumstances of misuse are no longer applicable. In such cases, the officer may allow the assessee to claim the balance in the electronic credit ledger.
  • The officer can maintain the restriction for a maximum of one year. After one year, if there is no change in the circumstance of misuse, the officer may once again disallow the electronic credit ledger.

The relevant notification is given below for reference:GST-Notification-Regarding-Misuse-of-ITC

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