In the case of:
Laxmi Fine Chem Vs. Assistant Commissioner
High Court of Telangana
Writ Petition No. 5256 of 2024
[2024] 161 taxmann.com 270 (Telangana)
Facts of the Case:
Vide Order dated 01.06.2024, Input Credit of Rs. 50,06,000 for the period 01.02.2024 to 13.02.2024 has been blocked by way of Negative Balance in the Electronic Credit Ledger
Petition has been filed on the grounds of:
- Blocking the ITC without the issue of Show Cause Notice and
- Blocking is in contravention of Rule 86A of CGST Rules, 2017, i.e., blocking cannot be made by way making negative Credit
Decision referred to by the Court:
Hon’ble High Court of Telangana has referred to the paras 38 to 44 of the decision of Gujarat High Court, in the case of Samay Alloys India Pvt Ltd. Vs. State of Gujarat C/SCA/18059/2021 [2022] 135 taxmann.com 243 (Gujarat), extract of which is as below:
- Once the input tax credit is claimed in electronic credit ledger, the credit becomes part of one fungible pool and the credit cannot be separately identified. Having regard to the same, the rule provides for restriction on an equivalent amount and not the credit itself. However, the rule presupposes existence of such credit in the electronic credit ledger.
- Rule 86A is not the only measure available with the Government. The Government can certainly initiate proceedings under the provisions of section 73 or section 74, as the case may be, for recovery of credit wrongly claimed. Further, the Government in an appropriate case may initiate proceeding for Cancellation of registration (either of the supplier of the recipient or both) under Section 29 of CGST Act. Furthermore, the Government can C/SCA/18059/2021 JUDGMENT DATED: 03/02/2022 also provisionally attach any property, including bank account, belonging to the taxable person under Section 83 of CGST Act.
- Accordingly, the fact or possibility of registered person availing and utilising the fraudulent credit persistently and continuously cannot be the basis to invoke Rule 86A.
- The power to restrict debit from the electronic credit ledger is extremely harsh in nature. It should be governed strictly by specific statutory language which conditions the exercise of the power.
- The respondents are directed to withdraw negative block of the electronic credit ledger at the earliest.
Findings of the Court:
Hon’ble High Court of Telangana has held that:
- Making negative credit of Rs.50,06,000/- in the electronic credit ledger of the petitioner which otherwise is not permissible and what is permissible is only blocking the availing of the input tax credit to whatever is in credit of the petitioner.
- Taking into consideration the decision of the Division Bench of Gujarat High Court (as referred to above), we find that the action on the part of the respondents in passing an order of negative credit to be contrary to Rule 86A.
- In the event, if no input tax credit was available in the credit ledger, the rules do not provide for insertion of negative balance in the ledger.
- If there is a credit balance available, then the authorities concerned in terms of provisions of Rule 86A may for reasons to be recorded in writing, not allow the credit of the said amount available equivalent to such credit. However, there is no power conferred upon the authorities for blocking of the credit to be availed by the petitioner in future.
- For the aforesaid reasons, we have no hesitation in holding that the action on the part of the respondents also is in contravention to Rule 86A. The action on the part of the respondents is also not sustainable for the reason that blocking of the input tax credit effectively deprived the petitioner of his valuable right to discharge his liability and realize the value in monitory terms.
- The impugned order is set aside/quashed. The respondents are directed to immediately recall the order of blockage forthwith.
Tax Diary 