2024 (10) TMI 604 - HC - GST

Withdrawal of negative blocking of ITC in the electronic credit ledger of the Petitioners - Jurisdiction and authority under Rule 86A of the Central Goods and Services Tax Rules, 2017 - HELD THAT - As per the eventualities provided in clauses (a) to (d) of Sub-rule (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 after reasons to be recorded in writing, is authorised not to allow the debit of an amount equivalent to such credit in Electronic Ledger for discharge of any liability under section 49 of the GST Act or for claim of any refund of any unutilised amount. After referring to Circular No. 4 of 2021 dated 24.05.2021 issued by the Office of the Commissioner of State Tax, State Goods Services Tax Department, Kerala with regard to blocking of the credit, it was observed that if there is Nil or insufficient balance in a particular tax head in the Electronic Credit Ledger, then the balance in another tax head can be blocked only if the cross-utilization from such head is permissible in law. But such cross-utilization between CGST and SGST is not permissible and therefore, the SGST credit ledger cannot be blocked if sufficient credit balance is not available under the CGST head and vice versa. The issues raised in this petition are already answered in favour of the petitioner as there cannot be any blocking of the credit in Electronic Credit Ledger if there is no sufficient balance available. The respondents are directed to withdraw the negative block of the Electronic Credit Ledger at the earliest to the extent of Rs. 2,44,05,567/- and whatever balance remained in the Electronic Credit Ledger after the removal of the balance of the negative figure, the same shall not be utilised by the petitioner till the show cause notice is issued, if any, under sections 73 or 74 respectively of the GST Act. Petition allowed.

Issues Involved:

1. Legality of negative blocking of Input Tax Credit (ITC) in the Electronic Credit Ledger.
2. Jurisdiction and authority under Rule 86A of the Central Goods and Services Tax Rules, 2017.
3. Requirement of reasons and procedural fairness in blocking ITC.
4. Impact of ITC blocking on business operations.
5. Compliance with precedents and judicial discipline.

Issue-wise Detailed Analysis:

1. Legality of Negative Blocking of Input Tax Credit (ITC):

The petitioner challenged the negative blocking of ITC amounting to Rs. 2,44,05,567/- in their Electronic Credit Ledger, arguing that there was no balance available at the time of blocking, resulting in a negative balance. The petitioner contended that such an action was without jurisdiction and illegal as there is no provision under the GST Act to negatively block ITC to be availed in the future. The court agreed with this contention, referencing the decision in Samay Alloys India Pvt. Ltd. v. State of Gujarat, which held that Rule 86A can only be invoked if ITC is available in the ledger. Since the petitioner's ledger had a nil balance, the blocking was deemed unlawful.

2. Jurisdiction and Authority under Rule 86A:

The petitioner argued that Rule 86A of the CGST Rules, which allows the Commissioner or an authorized officer to freeze the debit in the Electronic Credit Ledger, was not applicable in their case as the ITC balance was nil. The court reiterated that Rule 86A could only be invoked if ITC is available in the ledger and there are reasons to believe that the credit has been fraudulently availed or is ineligible. The court emphasized that the rule does not permit negative blocking and that the invocation of Rule 86A in this case was without jurisdiction.

3. Requirement of Reasons and Procedural Fairness:

The petitioner claimed that the blocking of ITC was done without issuing a show cause notice or providing an opportunity for a hearing, thereby violating principles of natural justice. The court highlighted that Rule 86A requires reasons to be recorded in writing for blocking ITC and that such drastic powers should be used sparingly and based on credible materials. The absence of a documented rationale or communication with a Documentation Identification Number (DIN) rendered the action procedurally unfair.

4. Impact of ITC Blocking on Business Operations:

The petitioner argued that the negative blocking of ITC severely impacted their business operations, as it prevented them from filing GST returns and fulfilling commitments to suppliers. The court acknowledged the detrimental effect of such blocking on the petitioner's business and emphasized that the power to restrict debit from the Electronic Credit Ledger should not be used in a manner that irreversibly affects the business.

5. Compliance with Precedents and Judicial Discipline:

The petitioner relied on previous decisions, including those of the Gujarat High Court and the Supreme Court, to argue that the negative blocking of ITC was contrary to established legal principles. The court reiterated the importance of adhering to judicial precedents, which promote certainty and consistency in legal decisions. The court concluded that the respondent authorities were bound by the precedent set in Samay Alloys India Pvt. Ltd. and could not justify the negative blocking of ITC.

Conclusion:

The court allowed the petition, directing the respondents to withdraw the negative block of Rs. 2,44,05,567/- in the Electronic Credit Ledger. The court emphasized that the petitioner could file returns and manage tax liabilities appropriately once the negative block was removed, subject to any show cause notice issued under sections 73 or 74 of the GST Act. The rule was made absolute to this extent, with no order as to costs.

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