Revenue Department is not authorized to block ITC for more than one year

[CA Bimal Jain]

The Hon’ble Karnataka High Court in the case of M/S. S.P. METALS VERSUS ASSISTANT COMMISSIONER OF CENTRAL TAXES, SENIOR INTELLIGENCE OFFICER [2024 (1) TMI 322 - KARNATAKA HIGH COURT] allowed the writ petition and held that as per sub-rule (3) of Rule 86A of the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”), the Respondent is not authorized to block the Input Tax Credit of the registered person under GST for a period of more than one year. Therefore, the continuation of blocking of ITC was illegal and arbitrary. Hence, directed to unblock the Input Tax Credit as per the Petitioner's Electronic Credit Ledger.

Facts:

Revenue Department (“the Respondent”) blocked Input Tax Credit (“ITC”) of S.P Metals (“the Petitioner”) vide order dated May 11, 2022 (“the Impugned Order”). Thereafter, the Petitioner made a representation dated July 06, 2023, with the Respondent, praying for the unblocking of ITC in the Electronic Credit Ledger on GST online portal. However, the ITC continues to be blocked by the Respondent. 

Aggrieved by the Impugned Order, the Petitioner filed a writ petition before the Hon’ble Karnataka High Court directing the Respondent authorities to unblock the ITC accrued in favour of the Petitioner.

Issue:

Whether the Revenue Department is authorized to block the ITC of the registered person under GST for a period of more than one year?

Held:

The Hon’ble Karnataka High Court in the M/S. S.P. METALS VERSUS ASSISTANT COMMISSIONER OF CENTRAL TAXES, SENIOR INTELLIGENCE OFFICER [2024 (1) TMI 322 - KARNATAKA HIGH COURT] held as under:        

• Noted that, the one year-stipulated period as stated in sub-rule (3) of Rule 86A of the CGST Rules, comes to an end on May 11, 2023, therefore no question arises for the Respondent to continue to block ITC of the Petitioner as the same is illegal and arbitrary.
• Held that, the writ petition is allowed.
• Directed that, the Respondent to unblock ITC as per the Petitioner’s Electronic Credit Ledger as expeditiously as possible. 

Relevant Provision:

Rule 86A of the CGST Rules:

“Rule 86A Conditions of use of amount available in electronic credit ledger:

(1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as

a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36-

i. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained;

or

ii. without receipt of goods or services or both; or

b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or

c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or

d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36,

may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.

(2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.

(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”

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