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TMI Blog2024 (12) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceedings, was to ascertain facts and to take action accordingly. There is no direction to block, the credit ledger, without any exception. It may be noted that ITC of the petitioner was blocked in March, 2024 and this proceeding has no relevance. Accordingly this contention of the petitioner is also rejected. The petitioner s contention that the power under Rule 86A has been invoked without giving any reasons and without looking into the past conduct of the petitioner also requires to be rejected. Though the initial communication, dated 20.03.2024, had given a cryptic description of the reason for blocking ITC, the fact remains that the ground on which such ITC has been blocked can be made out. However, further details have also been given subsequently. In such circumstances, the contention, that no cogent reasons are given, cannot be accepted. It may also be noticed that the blocking of ITC does not amount to recovery of tax, but only stops the use of ineligible ITC. In such cases, the supply of reasons, initially in a cryptic manner, in the order, and subsequent elaboration, of those reasons, meets the requirement of principles of natural justice. Rule 86A (1)(d) stipulates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said grounds, as reiterated by the learned counsel for the petitioner, are as follows:- a) Rule-86A of the Rules, 2017, permits blocking of credit, which is actually available in the electronic credit ledger. The learned counsel for the petitioner submits that there was no input tax credit available in the electronic credit ledger of the petitioner, as on the date of the blocking order and consequently, Rule-86A of the Rules, 2017, could not have been invoked. He relies upon the Judgments of various High Courts in the cases of Samay Alloy India Pvt. Ltd. Vs State of Gujarat 2022 (61) G.S.T.L. 421 (Guj), Best Crop Science Pvt. Ltd. Vs. Principal Commissioner, CGST Commissionerate, Meerut (2024) 22 Centax 531 (Del), PMW Metal and Alloys Pvt. Ltd. Vs. Union of India (2024) 23 Centax 317 (Guj.), Laxmi fine Chem Vs. Assistant Commissioner 2024 (87) G.S.T.L. 197 (Telangana), New Nalbandh Traders Vs. State of Gujarat 2022 (66) G.S.T.L. 334 (Guj.) and Deem Distributors Pvt. Ltd. Vs. Union of India 2022 (56) G.S.T.L. 282 (Telanagana). b) The term availed means the input tax credit taken in the monthly returns and credited to the electronic credit ledger, under the GST, which may or may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N 1 of 2022, and also the judgment of the Hon ble High Court of Allahabad in R.M. Dairy Products LLP vs. State of U.P. and Ors., dated 15.07.2021 in Writ Tax No.434 of 2021. b) The exercise of power, under Rule 86A of the Rules, 2017 was done on the ground that the input tax credit, which was utilized by the petitioner, had been obtained from non-existent fake entities. In such a case, the fact that the petitioner was, earlier, paying taxes cannot be a ground to refrain from exercising the power under Rule 86A of the Rules, 2017. c) The exercise of power under Rule 86A was intimated to the petitioner, through the portal of the respondents. Since there is a physical limit on the reasons that can be set out in the said portal, a brief explanation was set out in the portal. Subsequently, a detailed note setting out the details of the fake entities etc., was sent to the petitioner. In such circumstances, the contention of the petitioner that no reasons had been set out or that proper reasons have not been recorded is incorrect. d) The contention of the petitioner, that the 2nd respondent had invoked the power, under Rule 86A of the Rules, 2017, only on the ground that the commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court: 9. Rule 86A of the Rules, 2017, reads as follows: 86A: (1) The Commissioner or an officer authorized 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without giving any reasons and without looking into the past conduct of the petitioner also requires to be rejected. Though the initial communication, dated 20.03.2024, had given a cryptic description of the reason for blocking ITC, the fact remains that the ground on which such ITC has been blocked can be made out. However, further details have also been given subsequently. In such circumstances, the contention, that no cogent reasons are given, cannot be accepted. It may also be noticed that the blocking of ITC does not amount to recovery of tax, but only stops the use of ineligible ITC. In such cases, the supply of reasons, initially in a cryptic manner, in the order, and subsequent elaboration, of those reasons, meets the requirement of principles of natural justice. 13. The language of Rule 86A came to be considered by various High courts. The Hon ble High Court of Gujarat and the Hon ble High Court of Telangana, appear to have taken the view that only such tax credit, which is available in the electronic credit ledger can be blocked. For this purpose, the authority would have to first verify whether there is any ITC available in the electronic credit ledger, at the time when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he means set out in sub-clauses (a) to (d) of Rule 86A (1). We are unable to accept the interpretation that the term such credit means the credit which is actually available in the credit ledger. 20. Rule 86A (1)(d) stipulates that the appropriate authority, after giving reasons to be recorded in writing, may disallow debit of an amount equivalent to such credit in the electronic credit ledger, either for discharge of any liability or for claim of any refund of an unused amount. The reasons, that need to be set out in the order of blockage, would have to indicate why the order of blockage is being issued. In the present case, the initial order carried only the basic ground. The learned standing counsel contends that the system, in the GST portal, does not provide enough space to set out elaborate reasons. Due to this difficulty, the basic reason was set out and the subsequent communications gave more elaborate reasons. The reasons set out in the GST portal, barely pass muster. This appears to be a case where, technology, instead of assisting the cause of justice, is actually hindering it. It is time that the authorities took note of this fact, and made necessary changes to ensure t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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