2021 (7) TMI 127 - HC - GST

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 ... Provisional blocking of input tax credit under Rule 86A(1) - power to restore debit of electronic credit ledger upon satisfaction under Rule 86A(2) - one year limitation on restriction under Rule 86A(3) - continuance of blockage beyond one year not permissible - unblocking of electronic credit ledgerOne year limitation on restriction under Rule 86A(3) - provisional blocking of input tax credit under Rule 86A(1) - unblocking of electronic credit ledger - Whether the provisional blockage of the petitioner's electronic input tax credit ledger could lawfully continue beyond one year from the date of imposition. - HELD THAT: - The Court noted the statutory scheme in Rule 86A which permits provisional disallowance of debit from the electronic credit ledger where there are reasons to believe credit was fraudulently availed or is ineligible, and that the Commissioner may restore debit upon being satisfied the disallowance conditions no longer exist. Sub rule (3) expressly states that such restriction shall cease to have effect after expiry of one year from the date of imposing the restriction. On instructions, counsel for the respondents conceded that continuation of the blockage beyond one year is not supported by law. In view of that concession and the clear provision in Rule 86A(3) that the restriction ceases after one year, the Court held the continued blocking of the petitioner's input tax credit ledger after the one year period was unlawful and ordered unblocking, while leaving open the respondents' right to take any action permitted by law. [Paras 3, 4]The provisional blockage could not lawfully continue beyond one year and the respondent is directed to forthwith unblock the petitioner's electronic input tax credit ledger; without prejudice to any lawful action the respondents may thereafter take.Final Conclusion: Writ petition allowed: the Commissioner is directed to immediately unblock the petitioner's input tax credit in the electronic credit ledger, the order being founded on Rule 86A(3)'s one year limitation; respondents remain free to take any further action permissible under law. 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.