2024 (10) TMI 1325 - HC - GST

Blocking of Input Tax Credit (ITC) - sub-rule (1) under rule 86A in Odisha Goods and Services Tax Rules, 2017 - HELD THAT - Rule 86A provides for blocking of available input credit. Section 74 deals with determination of tax, inter alia, on wrongfully availing ITC. Thus there is an essential difference between section 74 operating in a field where ITC has already been availed of and rule 86A, operating where there is available ITC. In the circumstances, requirement under section 74 for issuance of show cause notice cannot be implied as mandate of pre-condition for blocking under rule 86A. The proper officer has exercised discretion in intimating petitioner that ITC has wrongly been availed by him and therefore there will be determination and recovery of tax. Regarding the assessment made under section 62, we appreciate that petitioner, in disputing the allegation of wrongfully availing ITC and suffering blocking of his available ITC, may have been prevented from filing return. As such, we direct that petitioner will have 30 days to file return commencing from date of communication of decision taken on his representation for unblocking his ITC. Petition disposed off.

Summary

Issues:
1. Interpretation of Rule 86A in Odisha Goods and Services Tax Rules, 2017 in relation to blocking of Input Tax Credit (ITC).
2. Compliance with Section 74 of Odisha Goods and Services Tax Act, 2017 regarding determination of tax on wrongfully availed ITC.
3. Appropriation of available ITC without prior determination leading to negative balance ITC.
4. Discrepancy between Rule 86A and Section 74 in terms of blocking available ITC and determination of tax.
5. Corrective actions required for negative ITC entry in electronic ledger and unblocking of ITC.

Analysis:
The petitioner's advocate argued that the impugned communications on blocking ITC did not follow the mandatory issuance of a show-cause notice under Section 74 for tax determination, as required by the Odisha Goods and Services Tax Act, 2017. The petitioner's available ITC was blocked without proper determination, leading to a negative balance ITC in the electronic ledger, hindering GST return filing since April 2024. The advocate sought intervention based on these grounds.

The revenue's advocate contended that Rule 86A, governing the blocking of available ITC, is distinct from Section 74, which deals with tax determination on wrongfully availed ITC. He argued that blocking under Rule 86A is an interim measure unrelated to tax determination under Section 74, with tax recovery procedures outlined in Section 79 following determination. The revenue opposed the writ petition on these grounds.

The Court noted the difference between Section 74, applicable after ITC availing, and Rule 86A, relevant for available ITC, implying that a show-cause notice under Section 74 is not a prerequisite for blocking under Rule 86A. The Court directed the revenue to rectify the negative ITC entry in the electronic ledger, indicating action taken for recovery, and address the petitioner's blocked ITC situation.

Regarding the petitioner's request for unblocking ITC and disputing tax determination, the Court acknowledged the revenue's discretion in issuing an intimation under Rule 142(1A) prior to a formal notice under Section 74. The Court allowed the petitioner 30 days to file a return following the decision on unblocking the ITC, recognizing the hindrance caused by the blocked ITC to return filing.

In conclusion, the Court disposed of the writ petition, accepting the revenue's contentions on intimation issuance and assessment under Section 62, while granting relief to the petitioner for filing a return within 30 days of the decision on unblocking the ITC.