Interpretation of Rule 86B - Whether

[vaibhav agrawal]

Dear Experts,

I seek your views on the interpretation of clause (a) of the first proviso to Rule 86B of the CGST Rules, 2017.

Clause (a) provides that Rule 86B shall not apply where the registered person or the specified persons have paid income tax exceeding Rs. 1 lakh in each of the 'last two financial years for which the time limit to file return of income under section 139(1) of the Income-tax Act has expired.'

The issue is whether the above expression has to be interpreted:

1. Dynamically with reference to each tax period (month) in which Rule 86B is to be applied; or
2. Once at the beginning of the financial year (say, in April), and the same two financial years continue to apply throughout that GST financial year.

For example, while examining the applicability of Rule 86B during FY 2026-27, should the exception under clause (a) be tested separately for each month? This question arises because the due date under section 139(1) for filing the income-tax return for FY 2025-26 may expire during FY 2026-27. Consequently, from that date onwards, the expression 'last two financial years for which the time limit... has expired' would appear to refer to a different set of financial years.

In other words, should the relevant two financial years change during the course of the GST financial year upon expiry of the income-tax return due date, or should they remain fixed for the entire financial year based on the position prevailing in April?

AI Summary

Rule 86B interpretation: whether 'last two financial years' must be tested month-wise or fixed for the full GST year. Interpretation of the first proviso to Rule 86B of the CGST Rules, 2017 requires determining whether 'last two financial years' is to be applied dynamically with reference to each GST tax period or fixed once at the start of the financial year. The issue is whether the exception from Rule 86B, based on payment of income tax exceeding the prescribed threshold in each of the last two financial years for which the time limit under section 139(1) has expired, should be tested month-wise during the year or on a constant basis for the entire GST financial year.