Query regarding Rule 86B - Pay and Claim Refund or Contest the Demand?

[vaibhav agrawal]

Dear Experts,

I seek your valuable opinion on the following issue concerning Rule 86B of the CGST Rules.

Facts:

• An ASMT-10 (Scrutiny Notice) has been issued wherein the department has alleged non-compliance with Rule 86B for FY 2022-23. None of the exceptions/exemptions provided under Rule 86B are applicable.
• The entire output tax liability was discharged through validly available ITC. The dispute relates only to the requirement of paying 1% through the Electronic Cash Ledger under Rule 86B.
• The period involved is April 2022 to March 2023, i.e., it covers both:
  • April-September 2022, when Rule 86B was in force but Section 49(12) had not yet come into force; and
  • October 2022-March 2023, after Section 49(12) became effective.

My queries are:

1. From a legal and practical perspective, would it be advisable to:
   • contest the ASMT-10 by filing a detailed ASMT-11 reply and, if necessary, litigate the matter; or
   • pay the amount now and subsequently file a refund claim on the ground that it was an excess payment?
2. If I choose to pay the amount now and thereafter file a refund claim under Section 54 treating it as excess payment of tax, from which date would the limitation period of two years be computed? Would it run from the relevant tax period (FY 2022-23), or from the actual date of payment made pursuant to the ASMT-10 proceedings?
3. Can utilisation of ITC allegedly in excess of the limit prescribed by Rule 86B be treated as 'tax not paid' or 'short paid' under Section 73 in the absence of any express deeming provision in the CGST Act or the Rules?
4. Does the subsequent insertion of Section 49(12) with effect from 01.10.2022 have any bearing on the validity or enforceability of Rule 86B for the earlier period (April-September 2022)? Can it be argued that the amendment indicates Parliament considered an express enabling provision necessary, or is it more likely to be viewed as merely clarificatory?

Thank you in advance.

AI Summary

Rule 86B cash-payment restriction raises questions on ITC utilisation, refund limitation, short payment, and retrospective enforceability. Rule 86B cash-payment restriction is queried where output tax for FY 2022-23 was discharged through valid ITC, although its exceptions were unavailable. The issues are whether to contest the scrutiny notice or pay and claim refund as excess tax; the starting point for the refund limitation period; whether utilisation of ITC beyond the Rule 86B limit constitutes tax not paid or short paid under Section 73; and whether Section 49(12), effective from October 2022, affects Rule 86B's enforceability for the earlier period.