Court orders immediate unblocking of input tax credit worth Rs. 71,61,296/-, citing Rule 86(A)(3) violation.

The court allowed the writ petition filed by a Private Limited Company challenging the provisional blocking of input tax credit amounting to Rs. 1.5 crores based on alleged fraudulent activities. The court directed the immediate unblocking of Rs. 71,61,296/- in the electronic credit ledger, stating that the blockage of input tax credit beyond one year, as per Rule 86(A)(3) of CGST Rules, is not supported by law. The respondents admitted to the unlawfulness of the extended blockage, leading to the court's decision in favor of the petitioner.

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Issues:
Provisional blocking of input tax credit based on fake invoices under Rule 86(A)(1) of CGST Rules, 2017. Interpretation of Rule 86(A)(3) regarding the duration of blockage of electronic credit ledger. Whether the blockage of input tax credit beyond one year is supported by law.

Analysis:
The petitioner, a Private Limited Company, had its input tax credit provisionally blocked amounting to Rs. 1.5 crores due to alleged fraudulent availing of credit based on fake invoices issued by non-existing firms. The petitioner filed a writ petition seeking the unblocking of Rs. 71,61,296/- in its electronic credit ledger. The respondents were asked to provide instructions on the matter, and the petitioner relied on Rule 86(A)(3) of CGST Rules, emphasizing the time limit for disallowing the debit of the electronic credit ledger under the rule.

The petitioner's counsel argued that the blockage of the input tax credit ledger was made under Rule 86(A)(1) of CGST Rules, 2017, and referred to Sub-Rule(2) and Sub-Rule(3) of Rule 86(A) in support of their contention that the blockage cannot continue beyond one year from the date of imposition. The respondents' counsel failed to provide instructions on the matter despite multiple opportunities, leading to an admission that the blockage of the electronic credit ledger beyond one year is not supported by law.

Considering the admission by the respondents that the blockage of the petitioner's electronic credit ledger cannot extend beyond one year as per Rule 86(A)(3) of CGST Rules, the writ petition was allowed. Respondent no. 1 was directed to immediately unblock the input tax credit availed by the petitioner in its electronic credit ledger. However, it was clarified that this order does not prevent the respondents from taking lawful actions against the petitioner in the future.

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