TaxTMI 
TaxTMI 
2025 (6) TMI 502
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....o. B-109, RIICO Industrial Area, Bikaner Road, GOGELAV, NAGAUR-341001, Rajasthan(hereinafter "the applicant") is fit to pronounce advance ruling as they have deposited prescribed Fee under CGST Act and it falls under the ambit of the Section 97 (2) given as under: A. SUBMISSION OF THE APPLICANT (in brief) :- Brief facts of the case: • The applicant. [Aadinath Agro Industries], is a partnership firm engaged in [Spice processing unit] and is registered under GST. • The firm's monthly taxable turnover exceeds Rs. 50 lakh, making it subject to Rule 86B restrictions. • The total income tax paid in the preceding financial year is as follows: Entity/Partner Income Tax Paid (Rs.) Financial Year The Firm [0.00] [FY 2023-24] Partner 1 [32,274.00] [FY 2023-24] Partner 2 [72,153.00] [FY 2023-24] Partner 3 [0.00] [FY 2023-24] Total (Firm + Partners) [1,04,427.00] • Although no individual partner has paid more than Rs. 1 lakh separately, the firm and its partners together have paid well above Rs. 1 lakh in income tax. B. INTERPRETATION AND UNDERSTANDING OF APPLICANT ON QU....
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.... • This creates undue hardship for genuine businesses and contradicts the exemption's intent. 4.2. Legislative Intent of Rule 86B - Preventing Fake ITC Claims Rule 86B of the CGST Rules, 2017 was introduced vide Notification No. 94/2020-Central Tax, dated 22nd December 2020, and became effective from 1st January 2021. The primary objective behind the introduction of Rule 86B was to curb tax evasion, fraudulent ITC claims, and bogus invoicing under GST. Key Reasons for Introducing Rule 86B: • Curbing Fake ITC Utilization and Tax Evasion Before the introduction of Rule 86B, many businesses were fraudulently utilizing 100% of their Input Tax Credit (ITC) without paying any actual tax in cash. This led to revenue leakage for the government. Bogus firms were created solely to claim ITC without real business operations. Rule 86B prevents excessive reliance on ITC by mandating at least 1% of the output tax liability to be paid in cash. • Discouraging Circular Trading and Fake Invoicing Many fraudulent businesses were engaged in circular trading, where fake invoices were generated without actual supply of goods or service....
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....sideration creates an uneven playing field for partnerships compared to sole proprietorships and companies. Additional Submission :- SUBMISSION FOR PERSONAL HEARING BEFORE AAR Applicant: Aadinath Agro Industries GSTIN: 08ABXFA7290E1ZX Subject: Advance Ruling on Applicability of Rule 86B of CGST Rules, 2017 1. Introduction This submission is made on behalf of M/s Aadinath Agro Industries, a partnership firm registered under the Goods and Services Tax Act, having its place of business in Rajasthan. The firm is 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. 2. Facts of the Case The key facts relevant to the present matter are as follows: - The monthly taxable turnover of the firm exceeds Rs. 50 lakhs. - The firm primarily operates through the Input Tax Credit (ITC) mechanism. - Rule 86B of the CGST Rules, 2017 mandates that only 99% of the output tax liability can be discharged through ITC. - An exemption exists for entities where the p....
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....as per applicable tax regime/slab will be: - Particulars Amount Net profit before Interest and Remuneration 28,03,416.00 Less: Interest paid to partners (to be taxed in individual hand) 22,50,000.00 Less: Remuneration paid to Partners (to be taxed in individual hand) 4,23,000.00 Net profit (to be taxed in Partnership firm) 1,30,416.00 Distribution of profit of Partnership firm & tax liability are as follows- Particulars Ravi Doshi Ashok Doshi Divesh Jain Firm Income Total Interest [A] 7,50,000.00 7,50,000.00 7,50,000.00 - Total Remuneration [B] 1,41,000.00 1,41,000.00 1,41,000.00 - Net Profit from firm (exempt income) 43,472.00 43,472.00 43,472.00 1,30,416.00 Total Taxable income |A+B] 8,91,000.00 8,91,000.00 8,91,000.00 1,30,416.00 Income Tax on above income as per new tax regime 40,664.00 40,664.00 40,664.00 40.691.00 The total income tax paid by all the partners and firm cumulative is more than one lakh which comes to 162683.00 Now, if we consider a hypothetical situation that our firm's status will be proprietorship instead of partnership firm the....
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.... and operational efficiency of businesses. 8. GST Input Credit - Early-Stage Utilization: We have initiated the manufacturing business operations in the FY 2024-25 therefore our business is new and we have significant Input Tax Credit (ITC) accumulated on account of capital expenditure, mostly related to the purchase of plant and machinery. As the business is still in its initial phase with limited outward taxable supplies, the utilization of the available ITC is progressing at a slower pace. Therefore, the accumulated ITC will be gradually offset against future GST liabilities based on the scale of operations and taxable turnover increases. 9. Legislative Intent and Policy Perspective Rule 86B was enacted to curb fraudulent practices involving fake invoicing and improper ITC utilization. It was never intended to impact genuine businesses who regularly file returns, pay taxes and comply with law. Clarification from CBIC CBIC via official communication and social media (e.g., Twitter - @cbic india) has clarified: "The rule provides for various exemptions like exporters, suppliers of goods of inverted duty structure, taxpayers having a footprint in the Income ....
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....irm qualifies for exemption, even if no single partner has paid more than Rs. 1 lakh individually. 4) We also found that the taxpayer has submitted that they are engaged in business of spice processing unit and their taxable turnover exceeds Rs.50 Lakh per month due to which restrictions of rule 86 B is applicable on them. 5) Further, we also found that Taxpayer has submitted the details of income tax paid by them in the preceding financial year i.e. FY 2023-24, which is as under: Entity/Partner Income Tax Paid (Rs.) Financial Year The Firm [0.00] [FY 2023-24] Partner 1 [32,274.00] [FY 2023-24] Partner 2 [72,153.00] [FY 2023-24] Partner 3 [0.00] [FY 2023-24] Total (Firm + Partners) [1,04,427.00] From the above chart, the taxpayer submitted that no partner has paid income tax more than Rs. 1 lakh individually. However, the firm and its partners together have paid income tax above Rs. 1 lakh during the FY 2023-24. Further, the taxpayer submitted the details of total income tax paid by the firm and its partners during the FY 2022-23 and 2023-24, which is as under: Financial year Partner 1 Partner 2 Partn....
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....towards output tax in excess of ninety-nine per cent of total tax liability, where the value of taxable supply other than exempt supply and zero-rate supply, in a month exceeds fifty lakh rupees. 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 per Rule 86B, restriction to use amount available in electronic credit ledger upto ninety-nine percent of total tax liability is applicable on the taxpayer. 9) On further reading of the provision of Rule 86B, we observe that the restriction shall not apply, if any of its two partners of the firm 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. Further, the taxpayer has submitted the details of income tax paid by the firm and partners during the F.Y. 2022-23 and F.Y. 2023-24, which is as under: Financial year Partner 1 Partner 2 Partner 3 Firm Total 2022-23 48,766.00 90,072.00 0.00 0.00 1,38,838.00 2023-24 32,274.00 72,153.00 0.00 0.00 1,04,427.00 From the above submission of th....