2022 (3) TMI 1249 - HC - GST

Blocking of input tax credit including the negative block of electronic credit ledger - Seeking permission to raise of E-way bill - interest and penalty due to late filing of GSTR-3B return - HELD THAT - The principal issue involved in the present writ application is no longer res integra in view of the recent pronouncement of of this Court in the case of SAMAY ALLOYS INDIA PVT. LTD. VERSUS STATE OF GUJARAT 2022 (2) TMI 843 - GUJARAT HIGH COURT where it was held that Rule 86A is not the rule which entitled the proper officer to make debit entries in the electronic credit ledger of the registered person. 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. The respondents are directed to withdraw the negative block of the electronic credit ledger at the earliest. The negative block is to the extent of 14, 11, 678/-. Whatever balance remained in the electronic credit ledger after the removal of the balance to negative figure the same shall not be utilized by the writ applicant till the show cause notice is issued if any under Section 73 or 74 respectively of the C.G.S.T. Act. Once the negative block is removed the writ applicant shall proceed to file his returns with appropriate tax penalty and interest that may be determined in accordance with law. Application allowed.

Summary

Issues Involved:
1. Blocking of Input Tax Credit (ITC) under Rule 86A of the CGST Rules, 2017.
2. Authority and conditions for invoking Rule 86A.
3. Legality and jurisdiction of blocking ITC when no credit is available.
4. Refund of excess payment made due to illegal blocking of ITC.
5. Interim reliefs sought by the petitioner.

Issue-wise Detailed Analysis:

1. Blocking of Input Tax Credit (ITC) under Rule 86A of the CGST Rules, 2017:
The petitioner sought a writ of mandamus to unblock ITC amounting to ?15,37,103/- in the electronic credit ledger, arguing that the invocation of Rule 86A was improper as there was no credit available in the ledger at the time of blocking.

2. Authority and Conditions for Invoking Rule 86A:
The court referred to the case of Samay Alloys India Pvt. Ltd. vs. State of Gujarat, emphasizing that Rule 86A can only be invoked if the credit of input tax is available in the electronic credit ledger and there are reasons to believe that such credit has been fraudulently availed or is ineligible. The conditions for invoking Rule 86A include:
- Credit of input tax should be available in the electronic credit ledger.
- The Commissioner or an authorized officer should have reasons to believe that the credit has been fraudulently availed or is ineligible.
- Reasons to believe must be recorded in writing.

3. Legality and Jurisdiction of Blocking ITC When No Credit is Available:
The court found that blocking the electronic credit ledger when no input tax credit was available was wholly without jurisdiction and illegal. The court highlighted that the power under Rule 86A is conditional upon the availability of credit in the electronic credit ledger. If no credit is available, the blocking of the ledger and insertion of a negative balance is unauthorized.

4. Refund of Excess Payment Made Due to Illegal Blocking of ITC:
The petitioner was coerced to pay an excess amount of approximately ?20 Lakh due to the illegal negative blocking of the electronic credit ledger. The court ruled that this amount should be refunded to the petitioner, as the blocking was without jurisdiction and tantamount to recovery without adjudication.

5. Interim Reliefs Sought by the Petitioner:
The court directed the respondents to withdraw the negative block of the electronic credit ledger and refund the excess amount of ?20 Lakh to the petitioner within two weeks. The court also ruled that the petitioner could proceed to file returns with appropriate tax, penalty, and interest as determined in accordance with the law once the negative block is removed.

Conclusion:
The writ application was allowed, directing the respondents to withdraw the negative block of the electronic credit ledger and refund the excess amount paid by the petitioner. The court clarified that Rule 86A could only be invoked if credit is available in the electronic credit ledger and that the blocking of ITC without such credit is illegal. The petitioner was granted the reliefs sought, ensuring compliance with the legal provisions and protecting the petitioner's business interests.