2024 (12) TMI 517 - HC - GST

Negative blocking of the Electronic Credit Ledger ECL of the writ petitioner by the respondents in purported exercise of powers conferred by Rule 86A of the Central Goods and Services Tax Rules, 2017 - HELD THAT - The issue of a negative blocking is no longer res integra and stands concluded in favour of the writ petitioner in light of the judgment in Best Crop Science Pvt. Ltd. v. Principal Commissioner 2024 (9) TMI 1543 - DELHI HIGH COURT where it was held that ' 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 negative blocking of the ECL of the writ petitioner cannot be sustainefd - petition allowed.

Summary

Issues:
Negative blocking of Electronic Credit Ledger (ECL) under Rule 86A of CGST Rules.

Analysis:
The High Court addressed the issue of negative blocking of the Electronic Credit Ledger (ECL) of the petitioner under Rule 86A of the Central Goods and Services Tax Rules, 2017. The court noted that the sole grievance raised was regarding the negative blocking of the ECL by the respondents based on an email directive dated 14 May 2024. The court observed that the issue of negative blocking had been previously settled in favor of the writ petitioner based on the judgment in Best Crop Science Pvt. Ltd. v. Principal Commissioner. The court emphasized that the provision of Rule 86A is an emergent measure to protect revenue by temporarily withholding the debit of available Input Tax Credit (ITC) if fraud or ineligibility is suspected, without the need for prior show cause notice. The court clarified that Rule 86A is not a recovery provision but a protective measure to prevent wrongful availment of ITC.

The court highlighted that if the conditions for disallowing debit no longer exist, the officer must permit debit from the ECL. Additionally, the order under Rule 86A is operative for a maximum period of one year from its issuance. The court emphasized that Rule 86A is not part of the machinery provisions for tax recovery but a safeguard to prevent wrongful availment of ITC. The court clarified that Rule 86A does not mandate the taxpayer to replenish the ECL with valid ITC previously utilized if fraud or ineligibility is suspected. Such an interpretation would amount to a recovery order, which is not the purpose of Rule 86A.

Consequently, the court allowed the writ petition, quashed the negative blocking directive, and set aside the impugned orders disallowing debit from the ECL beyond the available ITC at the time of the orders. The court held that the negative blocking of the ECL of the petitioner was unsustainable. The court granted liberty to the respondents to pursue other legal remedies available to them.