2025 (2) TMI 410 - HC - GST

Permissibility under Rule 86A of the Orissa Goods and Services Tax Rules 2017 - appropriating future input tax credit (ITC) by inserting a negative balance in the electronic credit ledger - HELD THAT - Reference made to Laxmi Fine Chem 2024 (5) TMI 509 - TELANGANA HIGH COURT regarding view taken on initiation of appropriate recovery proceedings as otherwise the blocking will automatically come to an end after a period of one year thereby making available to the dealer to debit in the electronic ledger on availing available therein input tax credit. Thus the blocking serves purpose of being security for revenue on recovery. Petition disposed off.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the revenue's action of appropriating future input tax credit (ITC) by inserting a negative balance in the electronic credit ledger is permissible under Rule 86A of the Orissa Goods and Services Tax Rules, 2017.

2. Whether the blocking of the electronic credit ledger for a period of one year, as per Rule 86A, can be justified in the absence of any provision allowing for negative blocking or appropriation of future credits.

3. The necessity for initiating appropriate recovery proceedings under sections 73 or 74 of the relevant tax legislation, rather than invoking Rule 86A for blocking credits.

ISSUE-WISE DETAILED ANALYSIS

1. Appropriation of Future Input Tax Credit

Relevant legal framework and precedents: Rule 86A of the Orissa Goods and Services Tax Rules, 2017, allows for the blocking of the electronic credit ledger for a period of one year. The petitioner relied on a judgment from the Telangana High Court in Laxmi Fine Chem v. Assistant Commissioner, which held that negative blocking is not permissible and only blocking of availing input tax credit is allowed.

Court's interpretation and reasoning: The Court noted that the Telangana High Court's decision emphasized that there is no provision for inserting a negative balance in the ledger. The Court acknowledged that the petitioner's argument was based on this precedent, which asserted that the rules do not allow for appropriation of future credits.

Key evidence and findings: The Court reviewed the impugned order and found no specific assertion by the revenue justifying appropriation. The revenue submitted an investigation report, indicating that proceedings were to be initiated, but no appropriation was demonstrated.

Application of law to facts: The Court found that the rules do not provide for negative blocking of future ITC and that any blocking should be limited to the available credit at the time.

Treatment of competing arguments: The petitioner argued against the negative blocking, while the revenue claimed compliance with previous court directions. The Court found the revenue's justification insufficient.

Conclusions: The Court concluded that negative blocking or appropriation of future credits is not permissible under Rule 86A.

2. Justification for Blocking of Electronic Credit Ledger

Relevant legal framework and precedents: Rule 86A allows for blocking for up to one year, with the possibility of unblocking if conditions no longer exist. The Court referenced its previous judgment affirming this interpretation.

Court's interpretation and reasoning: The Court reiterated that blocking is permissible only for a period of one year and must be justified by the revenue. The Court emphasized that the blocking serves as security for potential recovery by the revenue.

Key evidence and findings: The Court noted that the revenue had not provided adequate justification for the blocking beyond the investigation report.

Application of law to facts: The Court found that the blocking was not justified in the absence of a clear basis for the action.

Treatment of competing arguments: The petitioner argued that the blocking was without basis, while the revenue maintained that it was in compliance with the Court's previous directions.

Conclusions: The Court concluded that the blocking was not justified and highlighted the need for proper recovery proceedings.

3. Necessity for Recovery Proceedings

Relevant legal framework and precedents: Sections 73 and 74 of the tax legislation provide for recovery proceedings. The Court referenced the Telangana High Court's view that recovery proceedings should be initiated instead of relying on Rule 86A.

Court's interpretation and reasoning: The Court agreed with the view that recovery proceedings should be initiated if there is a need for recovery, rather than relying solely on blocking under Rule 86A.

Key evidence and findings: The revenue submitted that an investigation report had been filed and proceedings were to be initiated.

Application of law to facts: The Court found that the revenue should initiate recovery proceedings under the appropriate sections if necessary.

Treatment of competing arguments: The Court noted the petitioner's argument that the blocking was unjustified and emphasized the need for proper recovery proceedings.

Conclusions: The Court concluded that the revenue should initiate recovery proceedings if needed, rather than relying on blocking under Rule 86A.

SIGNIFICANT HOLDINGS

The Court held that the insertion of a negative balance in the electronic credit ledger is not permissible under Rule 86A and that blocking should be limited to available credits. The Court emphasized the need for proper recovery proceedings under sections 73 or 74 if necessary. The blocking serves as security for potential recovery, but it must be justified and cannot extend beyond one year without proper basis.

Core principles established: The Court established that Rule 86A does not allow for negative blocking or appropriation of future credits and that recovery proceedings should be initiated if necessary. The blocking is a temporary measure and must be justified by the revenue.

Final determinations on each issue: The Court determined that the revenue's actions were not justified and that proper recovery proceedings should be initiated. The writ petition was disposed of with these conclusions.

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