Blocking of Credit Ledger cannot result in creating negative Balance in Credit Ledger and authority is not at Dead End as recovery measures u/s 73/74 is available

[Rachit Agarwal]

SAMAY ALLOYS INDIA PVT. LTD. VERSUS STATE OF GUJARAT [2022 (2) TMI 843 - GUJARAT HIGH COURT]

Issue Involved

Whether Credit Ledger under Rule 86A can be blocked beyond the amount available balance in Credit Ledger resulting in Negative balance in Credit Ledger

Hon’ble Court and Judicial Pronouncements

1. Accordingly, in case where (i) Credit of input tax is not available in the electronic credit ledger or (ii) such credit has already been utilised, the powers conferred under Rule 86A cannot be invoked.
2. The rule merely allows the proper officer to disallow the registered person debit from the electronic credit ledger for the limited period of time and on a provisional basis. In case debit entries are made by the proper officer, the same will tantamount to permanent recovery of the input tax credit and certainly permanent recovery is governed by the statutory provisions (Section 73 and 74 of CGST Act) and it certainly travels beyond the plain language and underlined intent Rule 86A.
3. The Government in its wisdom has framed Rule 86A and this rule is not framed to recover the credit fraudulently availed.
4. In case where credit is fraudulently availed and utilised, appropriate proceeding under the provisions of section 73 or section 74, as the case may be, can be initiated.
5. Secondly, Rule 86A is not the rule which provides for debarring the registered person from using the facility of making payment through the electronic credit ledger. In case the intention was to disallow future debits or credit in electronic credit ledger, the text of the rule would be entirely different.
6. The Rule 86A empowers the proper officer to disallow debit from the electronic credit ledger for an amount equivalent to the amount claimed to have been fraudulently availed.
7. Consequence of the invocation cannot determine the applicability of the rule.
8. Once the input tax credit is claimed in electronic credit ledger, the credit becomes part of one fungible pool and the credit cannot be separately identified. Having regard to the same, the rule provides for restriction on an equivalent amount and not the credit itself.
9. Rule 86A is invoked at a stage which is anterior to the finalization of an assessment or the raising of a demand. Accordingly, it should be governed strictly by specific statutory language which conditions the exercise of the power.
10. It is a settled rule of interpretation that the section heading or marginal note can be relied upon to clear any doubt or ambiguity in the interpretation of the provision to discern the legislative intent
11. 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.
12. Authorities are not remediless with respect to the alleged wrongful availment of the input tax credit by the writ applicant.
13. The respondents are directed to withdraw negative block of the electronic credit ledger at the earliest