RAJASTHAN AUTHORITY FOR ADVANCE RULING GOODS AND SERVICES TAX

BACKGROUND:

The Applicant is the holder of GST Registration No. 08ABXFA7290E1ZX and is inter-alia engaged in the business of spice manufacturing and trading, contributing significantly to the supply chain in the FMCG sector. The firm’s monthly taxable turnover exceeds Rs. 50 lakhs, thereby prima facie making Rule 86B applicable.The application has been filed by the applicant seeking whether the total income tax paid by the firm and its partners be considered for the exemption under Rule 86B. Also, If no single partner has paid more than ₹1 lakh in tax, but the firm and partners together have, does the exemption still apply.

QUESTION RAISED:

• Whether the cumulative tax payment of the firm and its partners can be considered for the exemption under Rule 86B?
• Whether the firm qualifies for exemption, even if no single partner has paid more than 1 lakh individually?

IMPORTANT PARA (DISCUSSION AND FINDINGS)

Para: -6 Before Proceeding, it is imperative to go through the relevant Provision of the Rule 86B ibid.

Rule 86B. Restrictions on use of amount available in electronic credit ledger. –

Notwithstanding anything contained in these rules, the registered person shall not use the amount available in electronic credit ledger to discharge his liability towards output tax in excess of ninety-nine per cent. of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees:

Provided that the said restriction shall not apply where –

1. the said person or the proprietor or karta or the managing director or any of its two partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees, as the case may be, have paid more than one lakh rupees as income tax under the Income-tax Act, 1961(43 of 1961) in each of the last two financial years for which the time limit to file return of income under subsection (1) of section 139of the said Act has expired; or
2. the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (i) of first proviso of sub-section (3) of section 54; or
3. the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (ii) of first proviso of sub-section (3) of section 54; or
4. the registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, upto the said month in the current financial year; or
5. the registered person is –
   1. Government Department; or
   2. a Public Sector Undertaking; or
   3. a local authority; or
   4. a statutory body:

Para-8. In the present case, we found that the taxpayer himself submitted in his application that their monthly turnover is more than fifty lakh rupees. Therefore, as per the perRule 86B, restriction to use amount available in electronic credit ledger upto ninety-nine percent of total tax liability is applicable on the taxpayer.

Para 9. we also observe that the taxpayer has raised question. whether the total income tax paid by the firm and its partners together can be considered for the exemption under Rule 86B. Ongoing through the provisions of Rule 86B ibid, we found that there is no provision of exemption for such conditions in the said rule where exemption can be consider for total income tax paid by the partners and the firm together.
In view of above, the exemption as per Rule 86B(a) is not applicable on the taxpayer. Hence, we hold that the restrictions of Rule 86B on the use of amount available in electronic credit ledger is applicable on the taxpayer. Thus. M/s Aadinath Agro Industries should use the amount available in electronic credit ledger to discharge his liability only up to ninety-nine per cent of total tax liability of the month as their monthly tax liability exceeds fifty lakh rupees and neither theindividual partner nor the firm has paid more than Rs. one lakh income tax during the last two financial years.

RULING

Question 1: Can the total income tax paid by the firm and its partners be considered for the exemption under Rule 86B?

ANSWER– No. as discussed above.

Question 2: If no single partner has paid more than 1 lakh in tax. but the firm and partners together have, does the exemption still apply ?

ANSWER -No, as discussed above.