2024-VIL-1047-DEL
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SGST High Court Cases

GST - Rule 86A of CGST Rules, 2017 – Blocking of Electronic Credit Ledger, Input Tax Credit, Valuable rights - Validity of blocking of input tax credit in Electronic Credit Ledger (ECL) in excess of the credit available in ECL and creating artificial negative balance in the ECL - Blocking of ITC in ECL on the ground that such ITC is either fraudulently availed or is inadmissible - Whether Rule 86A of the CGST Rules permits the Commissioner or an authorized officer to block a taxpayer's ECL by an amount exceeding the credit available at the time of issuance of the order – HELD – ITC can be availed by a taxpayer only if the necessary conditions for availing the same are complied with and the same is subject to the conditions and restrictions under the CGST Act and the Rules made thereunder. But it cannot be disputed that ITC is a valuable right - The Rule 86A of the CGST Rules is not a provision for recovery of tax or other dues. It enables the concerned authority to take temporary measures for the protection of the interest of revenue - the Rule 86A of the CGST Rules permits the Commissioner or an authorized officer to block the debit of only the amount of ITC that is available in the taxpayer's ECL at the time of passing the order, and which the officer has reasons to believe has been fraudulently availed or is ineligible - the Court rejected the Revenue's contention that the officer can block an amount exceeding the available ITC in the ECL, to the extent of the ITC that was previously availed and utilized, but which the officer believes was fraudulent or ineligible - the plain language of Rule 86A is unambiguous and does not support such an interpretation, as it clearly refers to the ITC "available in the electronic credit ledger" - Court differed with decision of Hon’ble Calcutta High Court in Basanta Kumar Shaw v. Asst Commissioner, and with the decision of the Hon’ble Allahabad High Court in R.M. Dairy Products LLP v. State of U.P. & Ors. and agreed with view of Gujarat High Court in Samay Alloys India (P) Ltd. v. State of Gujarat and the Division Bench of the Telangana High Court in Laxmi Fine Chem v. Assistant Commissioner cases - the orders impugned are set aside to the extent the impugned orders disallow debit from the respective ECL of the petitioners, in excess of the ITC available in the ECL at the time of passing of the impugned orders – the writ petitions are allowed - Principles for Interpretation of Rule 86A – HELD - when Rule 86A(1) of the CGST Rules refers to the ITC available in the ECL of a taxpayer (which the Commissioner or the officer authorized by him has reason to believe has been fraudulently availed or is ineligible), it clearly refers to the amount that is lying to the credit of the taxpayer in his ECL. It is difficult to accept that the expression “available in the electronic credit ledger” should be read as the ITC that was available in the ECL sometime earlier, prior to the same being used - There is no ambiguity in the plain language of Rule 86A and the literal construction of the said Rule also does not lead to any absurdity. The words “not allow debit of an amount equivalent to such credit in the electric credit ledger” clearly refers to such amount as is credited to the ECL to the extent that the Commissioner or an officer authorized by him has reason to believe has been fraudulently availed or is ineligible for the reasons specified in Clauses (a) to (d) of Rule 86A(1) of the Rules. In a case where the Commissioner or an officer authorized by him has a reason to believe that the tainted ITC is less than the ITC credited in the ECL, then it would necessarily follow that the order under Rule 86A(1) of the Rules would be confined to such amount as equivalent to the ITC, which the Commissioner or an officer authorized by him has reasons to believe has been fraudulently availed or is ineligible.
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