2022 (8) TMI 50 - HC - GST

Input Tax Credit - Disallowance of debit of IGST from the electronic credit ledger in exercise of the power conferred under Rule 86A of the Central Goods and Services Tax Rules, 2017 (CGST Rules) and the West Bengal Goods and Services Tax Rules, 2017 - HELD THAT - Rule 86A deals with conditions of use of amount available in electronic credit ledger. In terms of sub Rule 1, the Commissioner or the officer authorized by him in that behalf, (the first respondent herein), having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible on account of contingencies mentioned in clauses (a) to (d) may for reasons to be recorded in writing, not allowed debit of any amount equivalent to such credit in electronic credit ledger for discharge of any liability under Section 49 or for claim of any refund of any unutilized amount. In terms of sub Rule 3, such restrictions shall cease to have effect after the expiry of a period of one year from the date of imposing such restrictions. The key word which falls for interpretation is the word available - The word available occurring in Rule 86 (1) cannot be read in isolation and it has to be read along with the remaining words which is in the electronic credit ledger has been fraudulently availed or is ineligible , has been fraudulently availed would undoubtedly denote a situation which has occurred in the past. What is the duty of the Court? It is to examine the true intention of the legislature. It is the domain of the legislature to determine what is best for the public good and to provide for it by proper legislation, it is the domain of a Court to expound the law not to legislate. Rule 86A falls in Chapter IX of the Rules which deals with payment of tax. Rule 85 deals with Electronic Liability Register. In terms of Sub-rule (7) of Rule 85, a registered person shall, upon noticing any discrepancy in his electronic liability ledger, communicate the same to the officer exercising jurisdiction in the manner, through common portal in FORM GST PMT- 04 - The appellant has used the expression negative blocking . We find no such expression in Rule 86 A. It appears that such expression is used in common parlance among dealers. If the statute does not use the expression negative balance, such theory cannot be imported to justify the contention that there should be a positive balance to invoke Rule 86 A. Such interpretation would render the rule redundant and it can be also rewarding the assessee at times. Thus, the Rule 86A (1) read in its entirety will clearly shows that there is no requirement under the Rule that the electronic credit ledger should contain sufficient balance for the purpose of blocking the credit by invoking the said rule. The appellant has not been prevented from carrying on his business activities, all that has been done is to prevent him from operating the electronic credit ledger. Thus, the appellant would be free to carry on his business activities by effecting payment of the requisite amount of tax into his account and all that has been prevented is that the appellant would not be entitle to adjust the tax by availing the credit, if available in his electronic credit ledger. Appeal dismissed.

Summary

Issues Involved:
1. Validity of blocking the electronic credit ledger under Rule 86A of the CGST/WBGST Rules.
2. Interpretation of the term "available" in Rule 86A.
3. Whether input tax credit (ITC) is a vested right.
4. Compliance with procedural requirements for adjudication.

Detailed Analysis:

1. Validity of Blocking the Electronic Credit Ledger:
The appellant challenged the blocking of their electronic credit ledger by the first respondent under Rule 86A of the CGST/WBGST Rules. The appellant argued that this action was tantamount to recovery of demand without adjudication and was invalid as there was no credit available in the ledger at the time of blocking. The Court, however, upheld the blocking, stating that Rule 86A can be invoked if the officer has reasons to believe that the credit was fraudulently availed or is ineligible, irrespective of the current balance in the ledger.

2. Interpretation of the Term "Available" in Rule 86A:
The appellant contended that Rule 86A could only be invoked if there was a positive balance in the electronic credit ledger. The Court disagreed, interpreting "available" in conjunction with "has been fraudulently availed or is ineligible," meaning the credit at the relevant time was fraudulently availed or ineligible. This interpretation aligns with the purpose of Rule 86A, which acts as a deterrent pending adjudication and is not meant for recovery.

3. Whether Input Tax Credit (ITC) is a Vested Right:
The appellant claimed that ITC is a vested right and cannot be restricted. The Court refuted this, citing Supreme Court judgments in Jayam & Co. and ALD Automotive Pvt. Ltd., which held that ITC is a concession subject to strict compliance with statutory conditions and not a vested right. Therefore, the appellant's right to claim ITC is regulated by the provisions of the Act and Rules.

4. Compliance with Procedural Requirements for Adjudication:
The Court noted that the appellant failed to respond to the show-cause notices within the stipulated time and only submitted a reply after filing the writ petition. The Court directed the first respondent to consider the appellant's reply, provide an opportunity for a personal hearing, and adjudicate the show-cause notices expeditiously. The first respondent was instructed to conclude the proceedings within eight weeks, provided the appellant cooperates.

Conclusion:
The appeal was dismissed, and the Court upheld the blocking of the electronic credit ledger under Rule 86A. The Court emphasized that the term "available" should be interpreted in the context of fraudulent or ineligible availment of credit, and ITC is not a vested right but a concession subject to compliance with statutory conditions. The adjudication process was directed to be completed promptly.