2024 (11) TMI 190 - HC - GST

Unblocking of Electronic Credit Ledger ECL as maintained by the writ petitioner in accordance with the provisions of the Central Goods and Services Tax Act, 2017 Act and the Central Goods and Services Tax Rules, 2017 Rules - negative blocking - HELD THAT - The issue of negative blocking , and on grounds on which it is assailed by the writ petitioner, is no longer res integra and stands concluded by the decision of the Court in BEST CROP SCIENCE PVT. LTD. THROUGH AUTHORIZED REPRESENTATIVE, SH RAGHAV AGARWAL, M/S. JAI MAA ENTERPRISES, HILBERT INNOVATIONS PVT. LTD., M/S. NDCON CONSTRUCTIONS, GNG ELECTRONICS PVT. LTD. KAY KAY OVERSEAS CORPORATION, SHRI BALAJI POLYMERS THROUGH ITS PROPRIETOR MR. ANIL KUMAR VERSUS PRINCIPAL COMMISSIONER, CGST COMMISSIONERATE, MEERUT AND ORS., COMMISSIONER OF CENTRAL TAX AND GST DELHI NORTH ORS., PRINCIPAL CHIEF COMMISSIONER CGST AND CX, DELHI ORS. COMMISSIONER OF DELHI GOODS AND SERVICE TAX ANR., SALE TAX OFFICER OF DELHI GOODS AND SERVICE TAX AND ANOTHER. 2024 (9) TMI 1543 - DELHI HIGH COURT and where it was observed 'the petitions are allowed and the orders impugned in the present petitions, as tabulated below, are set aside to the extent the impugned orders disallow debit from the respective ECL of the petitioners, in excess of the ITC available in the ECL at the time of passing of the impugned orders (referred to as Negative blocking by the counsel during the course of their submissions)'. The action of the respondents cannot be sustained - petition allowed.

Summary

Issues:
1. Blocking of Electronic Credit Ledger (ECL) under the Central Goods and Services Tax Act, 2017.

Detailed Analysis:
The High Court was approached through a writ petition seeking a direction under Article 226 of the Constitution to unblock the Electronic Credit Ledger (ECL) maintained by the petitioner in accordance with the Central Goods and Services Tax Act, 2017, and the Central Goods and Services Tax Rules, 2017. The petitioner contended that the blocking and insertion of a negative balance in the ECL were unjustified. On the date of blocking, the amount in the ECL was INR 7,60,581. The issue revolved around the concept of 'negative blocking' and its validity under the law. The Court referred to a previous decision in Best Crop Science (P) Ltd. vs. Commissioner, where it was clarified that Rule 86A of the Rules allows the temporary withholding of credit in the ECL if there are reasons to believe it was fraudulently availed or is ineligible. The provision does not require prior initiation of proceedings against the taxpayer. The order under Rule 86A is emergent and aims to protect revenue by temporarily disallowing debit of available Input Tax Credit (ITC) in the ECL.

The Court emphasized that Rule 86A is not a recovery provision but a protective measure to prevent the misuse of ITC. It clarified that the order under Rule 86A does not mandate the taxpayer to replenish the ECL with valid ITC that was previously utilized if deemed fraudulently availed. Such an interpretation would essentially convert the order into a tax recovery measure, leading to increased cash outflow for the taxpayer. Therefore, the Court concluded that the orders disallowing debit from the ECL, resulting in negative blocking, were unsustainable under the law.

In light of the above analysis, the Court held that the action of the respondents in blocking the ECL was not justified. Consequently, the writ petition was allowed, and the respondents were directed to lift the negative blocking of the ECL immediately.