Referring to Rule 86A of the CGST Rules, which allows only for the blocking of credit available in the ledger and not for creating a negative balance, the Punjab and Haryana High Court (Chandigarh Bench) ruled that the creation of negative balances in the Electronic Credit Ledger (ECL) is unlawful and without authority of law.
The Court explained that such a step of creation of negative balances in the ECL goes beyond the powers granted under the law and violates the statutory framework of Section 49 of the CGST Act. Accordingly, the Court directed the GST authorities to restore the petitioners’ ledgers to their original state before the blocking orders.
The Division Bench comprising Justice Lisa Gill and Justice Meenakshi I. Mehta observed that the GST authorities have no power to create a negative balance in a taxpayer’s Electronic Credit Ledger (ECL) under Rule 86A of the CGST Rules, 2017, and that such action is without jurisdiction. Additionally, the Bench pointed out that administrative authorities must act strictly within the limits of the statute and not beyond the same.
Briefly, the petitioners had challenged the blocking of their Input Tax Credit (ITC) of Rs. 34.43, Rs. 67.82, and Rs. 16.49 lacs respectively, and the creation of negative balances in their ECLs. The petitioners argued that the GST Department exceeded its powers under Rule 86A by not only blocking their ITC but also creating negative entries in their ledgers, which is not permitted under the CGST Act, 2017. The Revenue Department opposed the petition, contending that the blocking of credit was done to protect revenue interests, based on a reasonable belief of wrongly claimed ITC.
Appearances:
Advocates Deepak Gupta, Hrithik Chaudhary, Nitish Bansal, and Ramneek K. Sandhu, for the Petitioner/ Taxpayer
Advocates Ajay Kalra and Isha Janjua, for the Respondent/ Revenue
