Applicability of Rule 86b i.e, 1% payment of tax in cash applicable to cess also?

[Nikhil Ramnani]

Hi everyone, whether rule 86B which prescribes mandatory 1% payment of tax in cash is applicable to Compensation Cess charged on output supply?

[Raam Srinivasan Swaminathan Kalpathi]

As Cess is not levied under the provisions of CGST Act, 2017 the provisions of Rule 86B, in my opinion, will not apply.

[Sadanand Bulbule]

Rule 86B does not apply to Compensation Cess because the rule strictly restricts the discharge of "output tax" (defined only as CGST/SGST/IGST), whereas Cess is an independent levy governed by its own parent Act and ring-fenced within its own credit pool.

[KASTURI SETHI]

Rule 86B is not applicable to Compensation Cess. Compensation cess is temporary and it is for specific purpose.

[KASTURI SETHI]

Additional Information

Cess or fee does not become part of "Consolidated Fund" and earmarked for purpose of services for which same levied - Cess can never become part of Consolidated Fund. [para 8]---CESTAT Mumbai in the case of STATE STREET SYNTEL SERVICES PVT. LTD.Versus COMMR. OF CGST & C. EX., MUMBAI reported as 2019 (5) TMI 1568 - CESTAT MUMBAI

[KALLESHAMURTHY MURTHY K.N.]

Sir,

Rule 86-B under GST prescribes that,

Notwithstanding anything contained in these rules, the registered person shall not use the amount available in the 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:

Eligibility for ITC for Cess is also governed by Sec. 16(2).

In case of ITC availed on Cess, the ITC at credit in the ECL shall also apply to this condition of restricting to 99%. I request the Experts' clarification on my view.

[Shilpi Jain]

Section 20 IGST makes provisions of CGST applicable to IGST. Payment is also one provision which is made applicable.

20. Application of provisions of Central Goods and Services Tax Act.

Subject to the provisions of this Act and the rules made thereunder, the provisions of Central Goods and Services Tax Act relating to,-

(i) scope of supply;

(ii) composite supply and mixed supply;

(iii) time and value of supply;

(iv) input tax credit;

(v) registration;

(vi) tax invoice, credit and debit notes;

(vii) accounts and records;

(viii) returns, other than late fee;

(ix) payment of tax;

(x) tax deduction at source;

(xi) collection of tax at source;

(xii) assessment;

(xiii) refunds;

(xiv) audit;

(xv) inspection, search, seizure and arrest;

(xvi) demands and recovery;

(xvii) liability to pay in certain cases;

(xviii) advance ruling;

(xix) appeals and revision;

(xx) presumption as to documents;

(xxi) offences and penalties;

(xxii) job work;

(xxiii) electronic commerce;

(xxiv) transitional provisions; and

(xxv) miscellaneous provisions including the provisions relating to the imposition of interest and penalty,

shall, mutatis mutandis, apply, so far as may be, in relation to integrated tax as they apply in relation to central tax as if they are enacted under this Act:

AI Summary

Rule 86B cash-payment restriction may not extend to compensation cess, treated as an independent levy with separate credit treatment.
Rule 86B restricts use of electronic credit ledger balances for discharging output tax liability beyond the prescribed limit. The discussion predominantly treats compensation cess as outside this restriction because it is an independent levy, is not imposed under the CGST Act, and operates through a separate credit pool. A contrary view suggests that compensation cess credit in the electronic credit ledger may be subject to the same restriction.