2022 (8) TMI 50 - HC - GST

Valid Rule 86A allows officers to block electronic ledger debits for fraudulently availed or ineligible credits; blocking won't stop business

HC dismissed the appeal, upholding Rule 86A's validity and the officer's power to disallow debits from the electronic credit ledger where credit is ... Conditions for use of amount available in electronic credit ledger - Blocking of electronic credit ledger under Rule 86A - Interpretation of 'available' and 'has been' in Rule 86A - Input tax credit as concession, not a vested right - Power to create a lien pending adjudicationInput tax credit as concession, not a vested right - Whether availment of input tax credit is a vested right of the assessee - HELD THAT: - The Court held that availment of input tax credit is not a vested or proprietary right but a statutory concession governed by the conditions in the statute and rules. Reliance was placed on precedents establishing that entitlement to input tax credit is conditional upon strict compliance with statutory provisions; therefore the appellant cannot assert a vested right to operate the electronic credit ledger irrespective of compliance. [Paras 8]Availment of input tax credit is a statutory concession subject to conditions and not a vested right.Interpretation of 'available' and 'has been' in Rule 86A - Blocking of electronic credit ledger under Rule 86A - Power to create a lien pending adjudication - Whether Rule 86A can be invoked only if a positive balance exists in the electronic credit ledger on the date of the blocking order - HELD THAT: - The Court interpreted Rule 86A by reading the words 'available' together with 'has been' and the rule as a whole. It rejected the construction that the rule requires a present positive balance in the ledger at the time of invocation. The words 'has been' indicate that the 'availability' of credit is to be read with reference to the period when the alleged fraudulent or ineligible availment occurred, and not necessarily the ledger balance on the date of the order. Rule 86A is designed to create a hold or lien on specified amounts pending adjudication and is not a provision for actual recovery; reading 'available' to require a present positive balance would render the rule otiose and defeat its object of deterring fraudulent or ineligible claims. The Court endorsed the reasoning in R M Dairy Products LLP that the words 'input tax available' relate back to the time of alleged wrongful availment. [Paras 9, 10, 19, 21]Rule 86A may be validly invoked even if the electronic credit ledger shows no positive balance on the date of the order, because the term 'available' relates to credit that 'has been' availed in the relevant past period; the provision authorises withholding/debarring (a lien) pending adjudication.Blocking of electronic credit ledger under Rule 86A - Conditions for use of amount available in electronic credit ledger - Whether the impugned order blocking the appellant's electronic credit ledger should be quashed and whether further adjudication is required - HELD THAT: - Applying the above legal conclusions to the facts, the Court was not persuaded to interfere with the impugned order. The existence of show-cause notices alleging mismatch and prima facie inadmissibility of credits for the stated periods justified invocation of Rule 86A. However, the Court directed that the respondent must consider the appellant's reply, afford personal hearing, examine documents and adjudicate the show-cause notices by a reasoned order. The Court therefore sustained the procedural validity of blocking but remitted the matter for full adjudication within a specified timeframe. [Paras 10, 22, 23, 24, 25]The challenge to the blocking order is rejected and the appeal is dismissed; the matter is remitted to the first respondent to adjudicate the show-cause notices after hearing and to pass a reasoned order within the time directed.Final Conclusion: The High Court held that input tax credit is a statutory concession, Rule 86A may be invoked with reference to credits that 'has been' availed (and need not depend on a positive ledger balance on the date of the order), and declined to quash the blocking order; the matter is remitted to the tax authority to afford hearing, consider the appellant's reply and adjudicate the show-cause notices by a reasoned order within the period directed. Issues Involved:1. Validity of blocking the electronic credit ledger under Rule 86A of the CGST/WBGST Rules.2. Interpretation of the term 'available' in Rule 86A.3. Whether input tax credit (ITC) is a vested right.4. Compliance with procedural requirements for adjudication.Detailed Analysis:1. Validity of Blocking the Electronic Credit Ledger:The appellant challenged the blocking of their electronic credit ledger by the first respondent under Rule 86A of the CGST/WBGST Rules. The appellant argued that this action was tantamount to recovery of demand without adjudication and was invalid as there was no credit available in the ledger at the time of blocking. The Court, however, upheld the blocking, stating that Rule 86A can be invoked if the officer has reasons to believe that the credit was fraudulently availed or is ineligible, irrespective of the current balance in the ledger.2. Interpretation of the Term 'Available' in Rule 86A:The appellant contended that Rule 86A could only be invoked if there was a positive balance in the electronic credit ledger. The Court disagreed, interpreting 'available' in conjunction with 'has been fraudulently availed or is ineligible,' meaning the credit at the relevant time was fraudulently availed or ineligible. This interpretation aligns with the purpose of Rule 86A, which acts as a deterrent pending adjudication and is not meant for recovery.3. Whether Input Tax Credit (ITC) is a Vested Right:The appellant claimed that ITC is a vested right and cannot be restricted. The Court refuted this, citing Supreme Court judgments in Jayam & Co. and ALD Automotive Pvt. Ltd., which held that ITC is a concession subject to strict compliance with statutory conditions and not a vested right. Therefore, the appellant's right to claim ITC is regulated by the provisions of the Act and Rules.4. Compliance with Procedural Requirements for Adjudication:The Court noted that the appellant failed to respond to the show-cause notices within the stipulated time and only submitted a reply after filing the writ petition. The Court directed the first respondent to consider the appellant's reply, provide an opportunity for a personal hearing, and adjudicate the show-cause notices expeditiously. The first respondent was instructed to conclude the proceedings within eight weeks, provided the appellant cooperates.Conclusion:The appeal was dismissed, and the Court upheld the blocking of the electronic credit ledger under Rule 86A. The Court emphasized that the term 'available' should be interpreted in the context of fraudulent or ineligible availment of credit, and ITC is not a vested right but a concession subject to compliance with statutory conditions. The adjudication process was directed to be completed promptly.