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TMI Blog2022 (2) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... travels beyond the plain language and underlined intent Rule 86A. The fact or possibility of registered person availing and utilising the fraudulent credit persistently and continuously cannot be the basis to invoke Rule 86A - the power to restrict debit from the electronic credit ledger is extremely harsh in nature. The rule outreaches the detailed procedure provided in the legislature for determination of input tax credit wrongly availed or utilised provided in Section 73 and 74 of CGST Act and empowers the officer to unilaterally impose certain restrictions in compelling circumstances. In other words, 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. The respondents are directed to withdraw negative block of the electronic credit ledger at the earliest. The condition precedent for exercise of power under Rule 86A of the GST Rules is the availability of credit in the electronic credit ledger which is alleged to be ineligible. If credit balance is available, then the authority may, for reasons t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their return for the month of September, 2021, there was no credit balance in the electronic credit ledger. Despite the same, the portal displayed a message that the electronic credit ledger had been blocked by the respondent No.2. It was further noticed by the writ applicants that a negative balance had been entered in their electronic ledger by the respondent No.2. In such circumstances and as a result of such negative balance, if the writ applicants would file return for the month of September, 2021 by claiming input tax credit, the writ applicants would be required to pay an additional amount of output tax under the provisions of the GST Act to the extent of negative balance of the input tax credit in the electronic credit ledger. 2.3 It appears that the writ applicants addressed a letter dated 22nd October, 2021 to the respondent No.2, requesting for reasons to block the input tax credit. The respondent No.2, however, thought fit not to pay any heed to such request. 2.4 In such circumstances, referred to above, the writ applicants are here before this Court with the present application. 3. Mr. Uchit Sheth, the learned counsel appearing for the writ applicants vehemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the petitioner has tried to read into the provision and has also tried to create an artificial interpretation by basically harping upon two points one that the debit can be only restricted if there is balance and second it amounts to recovery, which otherwise, has to be done after issuance of show-cause notice and final orders u/s 73/74 as the case may be. 3. It is submitted that dealing the second point first, it does not amount to recovery as the amount in all cases till the final adjudication remains in the account, only the debits are not permitted and therefore, the said submission is not only deviating from the original controversy but also misapplied. 4. Now dealing with the main issue involved in the petition i.e. permissibility of invocation of powers under Rule-86A and not permitting the debit of an amount equivalent to such credit in electronic credit ledger as seems to be fraudulently availed or ineligible upon recording reasons is concerned, the said powers are not limited to the available balance or the amount in the electronic credit ledger on that day it relates to the amount in general to the said extent. 5. In fact, the rule is very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble balance or non-availability of balance. 8. As far as the Rule-86A and its overall operation and exercise of powers are concerned, the same has been comprehensively covered by the judicial dictum of the Hon ble Court in the Case of M/S S.S. Industries Versus Union Of India Special Civil Application No.8841 of 2020 and Special Civil Application No.8163 of 2020 . The Hon ble Court, while, adjudicating the said issue has held in favour of revenue, however, the challenge to the Rule being independent issue pending in other cases, the Hon ble Court has not interfered with. 9. It is further submitted that neither does the exercise of powers make a future recovery nor would it mean that if there is no balance, the resultant effect of the exercise of powers is giving effect to a future eventuality. In fact, the most significant part is that for an act already committed by which wrongful ITC has been availed, to safeguard the same, to that extent debits are not permitted irrespective of the source of such an amount in the electronic credit ledger. 10.The department attempts to cite four different eventualities and exercise of power, to dislodge the illusion created by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a deposit of around ₹ 25 lakhs odd and the department exercises powers under Rule86A after the deposits of ₹ 25 lakhs odd, whether, the petitioner can claim that the balance had gone NIL and the ITC was already utilized and therefore, this particular amount which is of a subsequent transaction cannot be withheld for debits under section-49. As per the humble submission, the answer would be NO the petitioner would not be in the position to raise such a claim, more particularly in view of usage of words .may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger where, again the emphasis is on equivalent the amount can be from any deposits/availments previous or prior. Therefore, if the present submission in scenario (iv) is accepted, the same analogy would apply to scenario (iii), wherein, there was no balance available on that day. 9. Before we proceed to discuss the scope and applicability of Rule 86A, we must give a fair idea as to what is an electronic credit ledger in the GST. One of the benefits under the GST regime is that the payment of tax under the different heads is done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IGST is used to set off the IGST output liability (2) The ITC standing under the CGST is used to set off the remaining IGST output liability 15. Finally, the ITC standing under the SGST is used to set off the remaining IGST output liability. 16. Furthermore, no set off is available between the CGST and SGST. 17. Hence, from the above, it is clear how the electronic credit ledger is used while making the tax payment. What is Electronic Credit Ledger in GST? 18. The electronic credit ledger reflects the amount of Input Tax Credit available to the taxpayer. Thus, every claim of input tax credit of the registered taxpayer eligible for claiming such a credit is credited to this ledger. The amount available in the electronic credit ledger is utilized in making payments towards the outward tax liability by the registered taxpayer. 19. The electronic credit ledger shall be maintained in the form GST PMT 02. This form shall be maintained on the common portal for every registered person eligible to claim input tax credit under GST Act. Every claim of the input tax credit is credited to the electronic credit ledger. 20. The following are the components of For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as- a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36- i. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or ii. without receipt of goods or services or both; or b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond part of the rule provides for the consequences in case Rule 86A is invoked. 32. In other words, in case the conditions prescribed for the invocation of Rule 86A are not fulfilled, the officer cannot invoke the rule, and in such scenario, the consequences provided in the rule becomes ex-facie inapplicable. 33. One of the primary conditions in order to invoke Rule 86A is that the Credit of input tax should be available in the electronic credit ledger. Further, such credit should be claimed to have been (supported by reason to believe recorded in writing) fraudulently availed. 34. 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. 35. Further, 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. In case debit entries are made by the proper officer, the same will ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -A even as it stood after the 12th Amendment that they do not apply to a case which is covered by the Rules incorporated in Chapter VII-A introduced for the first time in the Rules on 14-7-1969. That is the relevant Chapter which deals with clearance of goods on provisional determination of the excise duty payable by the assessee himself. And, as I read these Rules, they are the only relevant Rules some of which will be specifically referred to in this judgment. The heading of Chapter VII-A is-- Removal of excisable goods on determination of duty by producers, manufacturers or private warehouse licensees. The provisions of Chapter VII-A are to apply to such excisable goods as the Central Government may, by notification in the Official Gazette specify in this behalf under Rule 173-A. Under Rule 173-B the assessee would file the list of goods for approval of the proper officer and he has to file a price list of goods assessable ad valorem under Rule 173-C. The assessee is under an obligation to furnish information regarding principal raw material under Rule 173-D. The normal production is to be determined under Rule 173-E. Then Rule 173-F says-- Where the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee shall take credit in the account-current for the excess on receipt of the assessment order in the copy of the return duly counter-signed by a Superintendent of Central Excise. The proper officer is to assess the duty due on the goods removed and complete the assessment memorandum on the return filed by the assessee. A copy of the return so completed has to be sent to the assessee. Then it is the obligation of the assessee to pay the deficiency, if any by making a debit in the account-current within ten days of the receipt of the copy of the return from the proper officer and where the amount paid is in excess, the assessee has to make a credit entry in that account. It would thus be seen that the account which is to be maintained by the assessee on his own provisional assessment of the amount of duty payable is subject to the control of the proper officer. To put it in other words, the scheme is like this. The assessee has to put sufficient amount in deposit in the treasury in the account current with the Collector. From that amount in credit, he can go on adjusting the amounts of duty payable by him on his own assessment. But finally the assessment is to be made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to interpret this provision to say that the proper officer can himself make the debit entries in the account current maintained by the assessee under Rule 173G. The proper officer may inform the assessee that under various accounts-current say, if a sum of ₹ 50,000/- is in deposit, he would adjust the amount of ₹ 30,000/- payable by the assessee on account of deficiency in the duty paid from the sum of ₹ 50,000/- and thenceforward would treat the amount of deposit only at Rs, 20,000/-. If he does so then the assessee in order to carry on his business further, in accordance with Chapter VII-A would be obliged to show in his account books the sum of deposit, as determined by the proper officer. From a practical point of view, the same result can be achieved but by the legal and legitimate method just indicated. Instead of following this legitimate and legal method, respondent No. 1 adopted a course of making the entries himself which are annexures 3 to 6 in this case --a method which was not warranted by law. In annexure 1 he had rightly asked the assessee to debit the amount by 22-2-1970, namely, the period of ten days counting from the date of the letter. On fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rule. 40. 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. Accordingly, the rule provides for restriction on an amount and not on the very credit which is fraudulently availed. Accordingly, the rule can be invoked even when the credit fraudulently availed is utilised. 41. In the aforesaid regard, first the language of an amount equivalent appears in the later portion of the rule which provides for the consequences in case the conditions for invocation of the rule are satisfied. As already discussed, the rule itself can be invoked only in case where the credit of input tax is available in the electronic credit ledger and accordingly, the consequence of the invocation cannot determine the applicability of the rule. Secondly, 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. However, the rule presupposes existence of such credit in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ran Singh, AIR 1959 (SC) 906] 46. In the aforesaid context, we may also refer to two more decisions of the Supreme Court (i) Commissioner of Income Tax, Madras vs. Kasturi Sons Ltd., (1999) 3 SCC 346 and (ii) Kapil Mohan vs. Commissioner of Income Tax, Delhi (1999) 1 SCC 450. 47. In Kasturi Sons (supra), the Supreme Court observed in Para-9 as under; 9. The principle that a taxing statute should be strictly construed is well settled. In Principles of Statutory Interpretation by Justice G.P. Singh, Sixth edition 1966, the law is stated thus:- The well-established rule in the familiar words of LORD WENSLEYDALE, reaffirmed by LORD HALSBURY and LORD SIMONDS, means: The subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words . In a classic passage LORD CAIRNS stated the principle thus: If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance in the electronic credit ledger is Nil. It would be appropriate to quote the entire circular placing much emphasis on Clauses-12 and 14 respectively therein. The same reads thus; Office of the Commissioner of State Tax, State Goods and Services Tax Department, Kerala, Tax Towers, Karamana, Thiruvananthapuram Dated: 24/05/2021 CIRCULAR No.04 /2021 Sub: Blocking of Credit under Rule 86A of SGST Rules- 2017 - Guidelines issued-reg: Ref: 1. order No. CT/17859/2018-A2 GSTC dated 22/01/2020 2. SoP for blocking/ unblocking of ITC 1. As per the new Rule 86A inserted in the GST Rules; [86A. Conditions of use of amount available in electronic credit ledger.- (1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36- i. issued by a registered person who has been found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entified from the red flag reports or other reports available in the back end. while taking figures from 2A, it shall be ensured that the 2A is updated. Such blocking shall be in terms of Rule 36(4) of the KSGST AND CGST rules and Circular No.123/42/2019- GST dated 11th November, 2019 of CBIC. 7. In respect of cases initiated by the Jurisdictional officers/proper officers, the request for blocking of credits shall be sent to the District Joint Commissioners concerned(Authorized officers) who will examine the same and will take necessary steps to block the ITC in the portal as per the SoP issued. 8. In respect of the requests for blocking ITC received from CBIC, the same has to be received and processed by Economic Intelligence Wing in the office of the Commissioner of State Taxes and they will examine the case and if found justified, it shall be forwarded to authorized District Joint Commissioner concerned who have the jurisdiction to block ITC of the said taxpayer. 9. Any requests from State Officers to block ITC pertaining to CBIC administrated taxpayers should be sent to Economic Intelligence Wing in the office of the Commissioner and they will process the same an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination of tax under section 73, 74, demand and recovery, provisional attachment of property etc. 15. ITC blocking is a temporary step and should not be seen as equivalent to recovery of tax. Action under section 73/74 is the full and final demand creation exercise as per GST Law. Both are mutually exclusive and SCN under section 73/74 should be issued immediately upon completion of investigation in all cases. 51. The circular referred to above fortifies the contention raised by Mr. Sheth. Clause 12 of the circular, referred to above, clarifies that 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. Such cross-utilization between CGST and SGST is not permissible. The circular has clarified that the SGST credit ledger cannot be blocked if sufficient credit balance is not available under the CGST head and vice versa. In the case of the writ applicants herein, there is no balance available under any of the heads in the electronic credit ledger and, hence, the question of blocking of credit would not arise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions issued by this very High Court in the case of S.S. Industries vs. Union of India, reported in (2021) 87 GSTR 71 (Guj.). Paras-3.1.2, 3.1.3 and 3.1.4 are relevant. We quote as under; 3.1.2 Perusal of the rule makes it clear that the Commissioner, or an officer authorised by him, not below the rank of Assistant Commissioner, must have reasons to believe that credit of input tax available in the electronic credit ledger is either ineligible or has been fraudulently availed by the registered person, before disallowing the debit of amount from electronic credit ledger of the said registered person under rule 86,4. The reasons for such belief must be based only on one or more of the following grounds: a) The credit is availed by the registered person on the invoices or debit notes issued by a supplier, who is found to be non-existent or is found not to be conducting any business from the place declared in registration. b) The credit is availed by the registered person on invoices or debit notes, without actually receiving any goods or services or both. c) The credit is availed by the registered person on invoices or debit notes, the tax in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the ITC is sought to be availed based on fraudulent transactions like fake/bogus invoices etc. However, the subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. It is not any and every material, howsoever vague and indefinite or distant remote or far-fetching, which would warrant the formation of the belief. (II) The power conferred upon the authority under Rule 86A of the Rules for blocking the ITC could be termed as a very drastic and far-reaching power. Such power should be used sparingly and only on subjective weighty grounds and reasons. (III) The power under Rule 86A of the Rules should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. (IV) The aspect of availing the credit and utilization of credit are two different stages. The utilization of credit is a vested right. No vested right accrues before taking credit. (V) The Government needs to apply its mind for the purpose of laying down some guidelines or procedure for the purpose of invoking Rule 86A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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