Updated to include tweet response from GSTN
During September this year, revenues collected for goods and services tax (GST) touched a five-month high at Rs1.17 lakh crore, says the Union ministry of finance. However, a whopping Rs6.14 lakh crore as input tax credit (ITC) remains blocked under Rule 86A by the tax authorities without any due process being followed. Out of this, just Rs1,370.71 crore was unblocked after one year, reveals information obtained under the Right to Information (RTI) Act.
Responding to the RTI application filed by Raipur-based chartered accountant (CA) Madhur Agrawal, , the central public information officer (CPIO) of GST Network (GSTN), S Mohan, says, "The amount of ITC blocked from all such taxpayers is Rs6,14,010.81 crore (Rs6.14 lakh crore). The amount of ITC pertaining to a period exceeding one year from the date of blocking such ITC blocked under Rule86A of the CGST Rules is Rs296311.45 (Rs2.96 lakh crore)."
According to the CPIO of GSTN, about 2,228 taxpayers for whom ITC worth Rs1,370.71 crore has been unblocked after one year has passed from the date of blocking such ITC.
The information provided by GSTN shows that Uttar Pradesh (UP) has a maximum amount of Rs5.82 lakh crore ITC blocked from 10,174 taxpayers. Delhi has the maximum number of taxpayers at 13,539, whose Rs5,744.75 crore are blocked under Rule 86A towards ITC.
Data provided by the finance ministry shows that gross GST revenues collected during September 2021 are Rs1,17,010 crore, of which Central (C)GST is Rs20,578 crore, state (S)GST is Rs26,767 crore, integrated (I)GST is Rs60,911 crore, including Rs29,555 crore collected on import of goods, and cess is Rs8,754 crore, including Rs623 crore collected on import of goods.
The Union government has settled Rs28,812 crore to CGST and Rs24,140 crore to SGST from IGST as regular settlement. The total revenues of the Union and the states after regular settlements during September 2021 is Rs49,390 crore for CGST and Rs50,907 crore for the SGST.
GST paid on purchases is available to be taken immediately as credit and offset with liability on sales. GST allows this on a self-assessment basis. In certain exceptional situations, the commissioner of GST has powers to block credit even before any due process of law is taken against questionable credits.
In December 2019, the Union government introduced Rule 86A vide notification no. 75/2019 to block fraudulently availed ITC. As per the rule, a commissioner or any officer authorised by him can block the ITC available in the electronic credit ledger of the taxpayer if he has reason to believe that the taxpayer has fraudulently availed ITC.
Claiming ITC for discharge of the output tax liability is a legal right of the taxpayer. ITC can be blocked only through specific powers of the law.
Unfortunately, credits blocked under this rule remain blocked only for one year but then notice or other proceeding needs to be initiated or unblocked.
However, the abuse under the prescribed rule continues even today. When the credit is blocked, taxpayers who would have paid GST to their suppliers are left to bear their output liability in cash without utilising valid credits because it is blocked.
According to Mr Agrawal, taxpayers whose credits have been blocked have effectively paid this extent of tax twice—one to their suppliers and again in cash. "Since one year has lapsed, if notices have been issued, the law will take its course, and credits must be unblocked. And if notices have not been issued, the suspicion itself is suspect, and credits must be unblocked," the CA points out.
The main question here is who is responsible for blocking credits for ITC for such a tremendous amount under Rule 86A?
When net GST revenue each month is Rs1.2 lakh crore and more than Rs2.96 lakh crore are liable to be unblocked immediately and without any excuse of 'data is subject to verification', heads must roll.
The data is provided under the RTI Act by GSTN, so the Union government has complete knowledge about the blocking of ITC credit and whether any due process was followed or not before blocking such credit.
Unblocking the ITC credit will give much reprieve to state governments as well. Of the total amount of Rs6.14 lakh crore blocked, UP alone has helped with more than Rs5.8 lakh crore. So, if the ITC credit for states is unblocked, GST revenues would fall, but the fall will be most significant for UP as its blocked ITC credit equals about a couple of years worth of the state’s GST revenues.
"But these credits must get unblocked immediately when the necessities for using this power no longer seem to exist. And more importantly, there is a case for doing away with this rule or to get someone even higher up to check if the commissioner is keeping a check!" Mr Agrawal, the CA from Raipur, who had filed the RTI, says.
Earlier in January this year, the Gujarat High Court, while holding that Rule 86A of the CGST Rules can be invoked during the pendency of investigation or inquiry, had expressed concerns on the wide ambit of the rule. It also directed proper guidelines to be issued prescribing the procedure to be followed to invoke the rule.
The HC observed that Rule 86A of the CGST Rules should not be used as a tool to harass the taxpayers. It also directed the revenue authorities to complete the investigation within four weeks from the date of the judgement's receipt and take appropriate action after that.
In a tweet, GSTN says, "a figure of Rs6.14 lakh crore of ITC blocked in GST is being circulated based on an RTI reply. The figure on verification has been found to be incorrect as it includes erroneous data entries made by the taxpayers. ITC of approximately Rs14,000 crores involving 66,000 taxpayers stands blocked as on date. This is only 0.38% (Approx.) of average ITC utilised by all taxpayers in a financial year."
However, GSTN made this claim without sharing details or saying how it provided the wrong data under RTI to Mr Agrawal.