2024 (2) TMI 595 - HC - GST

Seeking direction to the first respondent to raise the block on Input Tax Credit (ITC) - contravention of Rule 86A of the Tamil Nadu Goods and Services Tax Rules, 2017 (TNGST Rules) - HELD THAT - The power under Rule 86A may be exercised by any of the persons specified in sub-rule (1) thereof if such person has reasons to believe that the ITC available in the electronic credit ledger was fraudulently availed or that the registered person was not eligible for such credit. The text of Rule 86A indicates two requirements the objective satisfaction of the officer concerned and the communication of reasons for so believing in writing to the assessee concerned. While Rule 86A does not stipulate a prior notice, the language thereof and the nature of power exercised by resort thereto require the contemporaneous communication of reasons in writing to the assessee. In the case at hand, apart from mentioning the name of the supplier in the electronic credit ledger, no reasons were provided. Therefore, the petitioner is entitled to the unblocking of ITC. Petition is disposed of by directing the first respondent to take necessary action to remove the block on the ITC in the electronic credit ledger pertaining to the assessee.

Summary

Issues:
The issues involved in this case are the blocking of Input Tax Credit (ITC) by the second respondent and the petitioner seeking a direction to raise the block on ITC.

Blocking of ITC:
The petitioner sought a direction to remove the block on ITC amounting to Rs. 9,90,126, which was blocked by the second respondent through a text message on 11.12.2023. The petitioner contended that the block was in contravention of Rule 86A of the Tamil Nadu Goods and Services Tax Rules, 2017 (TNGST Rules).

Rule 86A of TNGST Rules:
The matter revolved around Rule 86A of the TNGST Rules, which outlines the conditions for the use of the amount available in the electronic credit ledger. The Rule empowers the Commissioner or an authorized officer to block the debit of an amount equivalent to the credit in the electronic credit ledger under certain circumstances, including fraudulent availing of input tax credit or ineligibility of the registered person for such credit.

Contestation and Decision:
The Government Advocate argued that a show cause notice was issued to the petitioner subsequently, and the petitioner had already submitted an explanation before receiving the notice. The advocate contended that allowing the petitioner to utilize the ITC at that stage would cause revenue loss. However, the Court held that Rule 86A requires the contemporaneous communication of reasons in writing to the assessee, which was not done in this case. Therefore, the Court directed the first respondent to remove the block on the ITC in the electronic credit ledger of the assessee, while allowing the respondents to initiate fresh action under Rule 86A in compliance with its terms. No costs were awarded in this regard.

Conclusion:
The Court disposed of the writ petition by ordering the removal of the block on the Input Tax Credit in the electronic credit ledger, emphasizing the importance of complying with Rule 86A and providing written reasons to the assessee in such cases.