This is a summary of a court judgment regarding the ...

GST Rules: Blocking ITC Ledger Only for Available Credit, Not Past Utilization.

Case Laws     GST

September 27, 2024

This is a summary of a court judgment regarding the interpretation of Rule 86A of the Central Goods and Services Tax (CGST) Rules, which deals with the blocking of input tax credit (ITC). The key points are: Input tax credit is a statutory right subject to conditions under the CGST Act. Rule 86A empowers tax authorities to block debit from a taxpayer's electronic credit ledger (ECL) if there is reason to believe the ITC was availed fraudulently or is ineligible. However, the blocking can only be done to the extent of ITC available in the ECL at that time, not exceeding it. The court held that Rule 86A is a drastic power for temporary protection of revenue interests, not for recovery of dues. The words "credit available in the ECL" plainly refer to the credit presently available, not previously availed and utilized ITC. If the tainted ITC is less than the ECL credit, the blocking must be limited to that amount. Authorities must follow procedures u/ss 73/74 of the CGST Act to determine wrongful availment and demand tax, interest or penalty. Rule 86A cannot require replenishing the ECL for past utilization of allegedly inadmissible ITC, as that would amount to recovery. The impugned orders exceeding the available ECL credit.

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