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Representation to the Revenue Secretary, Government of India on recent changes in GST vide notification dated 22.12.2020



Subject: Recent Changes in GST under Gazette Notification No. 94/2020 Central Tax and the concerns raised thereby for trade & industry



The Cochin Chamber of Commerce & Industry would like to bring to your kind attention certain difficulties being faced by the business community on account of the change in Rules vis-à-vis the Goods and Services Tax by notification dated 22.12.2020

Some major changes made vide Gazette Notification
No.94/2020-Central Tax/ include;
1) Reduction in Input Tax Credits


One of the fundamental principles canvassed while implementing GST was to nullify the cascading effect of taxes and free set off of input tax credits. However, progressively over the last three years, this principle has been watered down and assesses are required to pay out more taxes. When the GST was introduced in July 2017, assesses were permitted to take input tax credit provided they had a valid supporting invoice in respect of the same.  However, vide notification 49/2019 –Central Tax dated 9.10.2019 Rule 36(4) was inserted to restrict the input tax based on the details uploaded in the portal by the suppliers. In cases where the details were not uploaded by the suppliers, the assessee was entitled to credit of 20% of the eligible amount. This brought down the input credit availability significantly for no fault of the assessee since the restriction was brought in as the supplier had not uploaded the details.   Brakes were applied for the free flow of input credit and in other words, the cascading effect was brought in through the back door as the assessee had to pay output tax in spite of having eligible input tax credit. 



The restriction of 20% was brought down to 10% from 1.1.2020 and now proposed to be brought down to 5% with effect from 1.1.2021.


The further reduction of the limit from 10% to 5%, will have a serious negative impact on the cash flow of firms. This could pose another challenge in the already turbulent times.  These changes also require another set of compliances on a monthly basis i.e. check GSTR 2A if the credit claimed doesn’t exceed GSTR 2A by 5% and also determine the credit which are ‘eligible’ out of the GSTR 2A before applying etc. The credit availment of 5% affects the Business of small traders who file their returns quarterly which might lead to loss of Business for them. No rationale reasons have been given for restricting the input tax credit and then progressively reducing the quantum.  If claim of wrong input tax credit based on fake invoices are the reasons then it should be appreciated that as against GST monthly collection of over Rs.1 lakhs crore, the amount involved in such fake credits are insignificant.  For the crime committed by a notorious few, the larger trade and commerce should not be penalised.  It is submitted that the matter be taken up before the GST council and the said rule be dropped and until such time the proposed amendment restricting to 5% may not be implemented.

(2) Furthermore, a New Rule 86B has been inserted whereby taxpayers whose Taxable Turnover exceeds 50 lakhs in a tax period shall mandatorily pay at least 1% of tax from cash ledger even though balance is available in credit ledger. Through proviso to the said rule , exemption is provided for directors who have paid Rs.1 lakh and above as income tax and assessee who have paid output tax liability in cash of more than 1% of the liability cumulatively for the various months during the current year, this we may submit that will create untold difficulties for the small and medium assesses. Linking payment of income tax of directors / partners cannot be linked to the GST because smaller firms and firms with more number of partners are discriminated against those organisation which have small number of directors / partners. Further this is bound to prove detrimental to the availability of Working Capital requirements for many dealers.


We may also submit that there is a further restriction already in place vide Rule 86 A inserted from 26.12.2019 . As per clause (c) of the said rule,  the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government is restricted from the cash payments made towards GST at the instance of the Commissioner.


It may be thus be noted that the rigours of Rule 86A, 86B and 36(4) are inflicted on the assessee , not because of any failure from his side, but because of the failure of the suppliers to discharge their responsibilities.  This goes against the spirit of ease of doing business where honest assesses are subjected to restrictions


(3) Another new Rule 59(5) inserted is that taxpayers are now not allowed to file GSTR 1 if they have not filed their GSTR 3B for preceding two months, likewise if the taxpayer has opted for QRMP scheme and has not furnished GSTR 3B of previous Qtr., then subsequent filing of GSTR 1/ IFF shall not be allowed. 


This also, we feel goes against the spirit of Ease of Doing Business.


The imposition of the above restrictions will effectively restrict the seamless flow of credit of input tax to trade and industry especially during these very difficult times. 


This is also bound to result in a series of litigations regarding the validity of the rule restricting the use of ITC and use of checks and balances outside the purview of GST Act and forcible cash payment in cases wherein refund of unutilised ITC is barred by the law. The statute initially restricted the availability of Input Tax Credit, then restricted refund of unutilized Credit and then it has restricted the use of the credit in discharging the liability.


We hope that you will appreciate the challenges that these changes put on trade and industry take necessary steps to withdraw/amend these changes in the interest of promoting business and also reduce the burden on the genuine taxpayers of the nation during these testing times.


Expecting a favourable response,


Yours faithfully



K Harikumar