2021 (7) TMI 1057 - HC - GST

Jurisdiction or authority to block any input tax credit - Reason to believe - purchase with respect to which, adjudication proceedings are underway against the petitioner in accordance with Section 74 of the UP GST Act, 2017 - manner in which an amount may be determined to be due and recoverable from the petitioner - Rule 86A(1)(a)(i) of the State/Central Goods and Services Tax Rules, 2017 - HELD THAT - Plainly, there can be no dispute that the Act prescribes the manner for determination of any tax not paid or short paid. Section 74 of the Act provides for determination of input tax credit wrongly availed or utilized by reason of fraud etc through the process of adjudication. Section 78 of the Act further mandates that any amount that may be determined under Section 74 of the Act may not be recovered for a period of three months from the date of service of the adjudication order. Here, it may be seen that the recovery provision are contained in Section 79 and the enabling Rules. The recovery Rules fall under Chapter XVIII of the State GST Rules 2017 being Rules 142 to 161. On the other hand, Rule 86-A falls under the Chapter heading IX of the Rules regarding payment of tax - the word 'available' used in the first part of sub-Rules of Rule 86-A would always relate back in time when the assessee allegedly availed input tax credit either fraudulently or which he was not eligible to avail. It does not refer to and, therefore, it does not relate to the input tax credit available on the date of Rule 86-A being invoked. The word has been used in Rule 86-A (1) leave no manner of doubt in that regard. Reason to believe - HELD THAT - The correctness or otherwise or the sufficiency of the 'reason to believe' is not subject matter of dispute in the instant proceedings. It is the relevancy of that reason to believe with which we are in agreement with Mr. Ghildiyal. Thus, at present, the 'reason to believe' is based on material with the competent authority indicating non-existence of the selling dealer. It is thus alleged the petitioner was not eligible to avail input tax credit as the seller M/s Darsh Dairy Food Products, Agra was a nonexistent dealer. Purchase with respect to which, adjudication proceedings are underway against the petitioner in accordance with Section 74 of the UP GST Act, 2017 - HELD THAT - The operative portion of sub-rule (1) of Rule 86-A limits the exercise of power (by the authorized officer), to the amount that would be sufficient to cover the input tax that, according to the revenue, had either been fraudulently availed or to which the assessee was not eligible. It is an amount equal to that amount which has to be kept unutilised - the provision of Rule 86-A is not a recovery provision but only a provision to secure the interest of revenue and not a recovery provision, to be exercised upon the fulfillment of the conditions, as we have discussed above, we are not inclined to accept the further submission advanced by the learned counsel for the petitioner that there is any violation of the principle when a legislative enactment requires an act to be performed in a particular way it may be done in that manner or not at all. It also stands to reason, if there is no positive credit standing in the electronic credit ledger on the date of the order, passed under Rule 86-A, that order would be read to create a lien upto limit specified in the order passed as per Rule 86-A of the Rules. As and when the credit entries arise, the lien would attach to those credit entries upto the limit set by the order passed under Rule 86- A of the Rules. The debit entry recorded in the electronic credit ledger would be read accordingly. Petition dismissed.

Summary

Issues:
1. Jurisdiction of authorities to block input tax credit.
2. Requirement of a positive 'reason to believe' for blocking credit.
3. Premature nature of the order under Rule 86A.
4. Interpretation of Rule 86A and its purpose.

Issue 1: Jurisdiction of authorities to block input tax credit:
The petitioner challenged the jurisdiction of the authorities to block any input tax credit over the available amount on the date of the order. The court examined the relevant provisions of the State/Central Goods and Services Tax Rules, emphasizing that the Act prescribes the manner for determining any tax not paid or short paid. The recovery provisions under Section 74 and Section 78 of the Act were crucial in understanding the authority's power to determine and recover tax amounts.

Issue 2: Requirement of a positive 'reason to believe' for blocking credit:
The petitioner argued that the authorities must have a positive 'reason to believe' that the credit of input tax was fraudulently availed or the petitioner was ineligible. The court analyzed Rule 86A of the Rules, which outlines specific conditions for blocking input tax credit, such as fraudulent availment or dealing with non-existent registered dealers. The court noted that the 'reason to believe' was based on material indicating non-existence of the selling dealer, justifying the blocking of credit.

Issue 3: Premature nature of the order under Rule 86A:
The petitioner contended that the order under Rule 86A was premature as adjudication proceedings were ongoing, and recovery could only occur after three months from the adjudication order. The court clarified that Rule 86A does not involve recovery but rather secures the revenue's interest by blocking credit, creating a lien without immediate recovery. The court emphasized that any further credit earned by the petitioner would be subject to the lien specified in the order under Rule 86A.

Issue 4: Interpretation of Rule 86A and its purpose:
The court interpreted Rule 86A, highlighting that it does not allow the revenue to reverse or appropriate credit in the electronic ledger but only to block it as a lien. The court differentiated between not allowing debit and appropriation, emphasizing that the rule aims to secure revenue interests. The court dismissed the petitioner's argument of a violation of legislative principles, stating that Rule 86A operates independently of recovery provisions and serves to protect revenue interests without immediate recovery.

In conclusion, the court dismissed the writ petition, upholding the authority's power to block input tax credit under Rule 86A based on a positive 'reason to believe' of fraudulent availment or ineligibility, emphasizing the rule's purpose to secure revenue interests without immediate recovery.