Page 41 - DTPA Journal December 21

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18, the exception would be said to be attracted and Rule misusing ITC without payment of taxes
86B need not be complied with. in cash.

Q11. How should the limit of 1% be applied Q13. Which kind of genuine taxpayers may also
cumulatively in the current financial year to check get covered within the ambit of this rule?
applicability of Rule 86B? Please explain with an
Ans. Small taxpayers having less than Rs. 50 lakhs
example.
worth of taxable supplies would not get covered. Also,
Ans. Let us assume the following example in order to through the exceptions discussed above, most of the
determine the applicability of Rule 86B for month of
genuine taxpayers are eliminated from the ambit of this
January 2021:
rule. As per the twitter handle while clarifying the
Payment in cash cumulatively from April 2020 to misconceptions on this rule, the CBIC has clarified not
December is 10/1050 = 0.95%. Thereby, the limit of 1%
more than 0.5% taxpayers would be covered by this
does not stand breached. Thereby, the exception to Rule rule out of 1.2 crore taxpayers.
86B is not attracted.
Month Total GST payment Payment through Though this rule has been notified with the right
(in lakhs) Cash Credit intention in mind, the government cannot help but
cover a select group of genuine taxpayers as well
(in lakhs) (in lakhs)
within its ambit. An illustrative list of such taxpayers
Apr-20 50 0 50
has been provided below:
May-20 80 2 78
a) An entity with heavy capital investment
Jun-20 90 0.5 89.5
b) Persistent loss making entities
Jul-20 100 0 100
c) Lower rate of input and output with a higher rate of
Aug-20 120 2 118
tax on input services (e.g. a fabric trader having
Sep-20 130 1.5 128.5 substantial overhead expenditure)
Oct-20 150 1 149
d) A new entity which has high initial expenditure
Nov-20 160 0 160 and having low sales
Dec-20 170 3 167 e) An entity with high imports wherein the value of
Total 1050 10 1040 imported goods is inflated by Custom Laws

Q.14 Is there any legal way out for a genuine
Q12. What is the intent of the Government behind taxpayer to be excused from the mandatory 1%
notifying the said rule? cash payment?
Ans. There are numerous entities all over India which Ans: The Commissioner or any officer authorized by
engage in fake invoicing i.e. issue of invoices without
him have been given the power to remove the
actual supply of goods and / or services. These entities restrictions after such verification and safeguards as he
have a tendency only to receive credit and pass on credit may deem fit. This means that the genuine taxpayers
to other entities without making any payment of taxes in
who are unintentionally facing the brunt of this rule
cash. This rule has been notified in order to discourage
these entities from issuing these kinds of fake invoices have an option of making an application before the
which results in evasion of tax revenue and looting of Department. After observing the safeguards, it can
exempt the relevant taxpayers from following this
the government treasury. Thereby, this would help to
control fraudsters who issue fake invoices, show high provision. Hence it is suggested that genuine taxpayers
turnovers but have no financial credibility and flee after who are troubled by this new rule should carefully

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