The Bombay High Court clarified that Rule 86-A of the CGST Rules, 2017, can be invoked only in respect of input tax credit (ITC) that is actually available in the Electronic Credit Ledger on the date of the blocking order, since the provision does not empower the Revenue Officers to block “future” or “non-existent” credits, nor does it contemplate “negative blocking.”
The Court therefore quashed the impugned blocking order and directed restoration of the blocked ITC amount of ₹12.84 lacs within 15 days.
The Division Bench comprising Justice M.S. Sonak and Justice Advait M. Sethna observed that as on the date of issuance of the impugned blocking order, the ITC in the Petitioner’s Electronic Credit Ledger was ‘Nil’, and therefore, the powers under Rule 86-A of the CGST Rules could not have been exercised to block the ITC, which was not even available.
Rejecting the broader interpretation adopted by the Calcutta High Court in the case of Basanta Kumar Shaw vs Assistant Commissioner of Revenue, Commercial Taxes and State Tax [(2023) 120 GSTR 864 (Cal)], the Bench presided by Justice Sonak preferred the reasoning of the Gujarat High Court in the case of Samay Alloys India Pvt Ltd vs State of Gujarat [Special Civil Application No. 18059 of 2021 decided on 03/02/2022], to reiterate that if no ITC was available in the ledger, the blocking under Rule 86-A and insertion of a negative balance would be wholly without jurisdiction and illegal.
Briefly, the petitioner, a proprietary concern engaged in wholesale trading of metal & metal ores in Vasai, had challenged the order passed by the Deputy Commissioner of State Tax under Rule 86-A of the CGST Rules, 2017, blocking input tax credit (ITC) worth ₹12.84 lacs in the petitioner’s Electronic Credit Ledger (ECL).
The petitioner argued that at the time of the blocking order, its ECL balance was nil, and therefore, the invocation of Rule 86-A was without jurisdiction, as Rule 86-A does not authorise the blocking of future or non-existent credits. This was opposed by the State, contending that blocking under Rule 86-A could be made even when the ledger balance was nil, in case there was suspicion regarding fraudulent availing of ITC.
Cases Relied On:
Samay Alloys India Pvt Ltd vs State of Gujarat [Special Civil Application No. 18059 of 2021 decided on 03/02/2022]
Best Crop Science Pvt Ltd vs Principal Commissioner, CGST Commissionerate, Meerut [Writ Petition (c) 10980/2024 decided on 24/09/2024]
Karuna Rajendra Ringshia, Proprietor, RR Enterprises, vs Commissioner of Central Goods and Service Tax [Writ Petition (c) No. 7250/2024 decided on 21/10/2024]
Appearances:
Advocates Parmeet Singh and Vinit Dhage, for the Petitioner/ Taxpayer
Advocate Amar Mishra, for the Respondent/ Revenue