Blocking of input tax credit under Rule 86A challenged for inserting negative ledger balance; order set aside.

Challenge to administrative blocking of input tax credit under Rule 86(A) on grounds that respondents inserted a negative balance in the electronic credit ledger without issuing a show-cause notice, violating principles of natural justice. The reasoning holds that Rule 86(A) permits blocking availability of credit but does not authorize creating a negative ledger entry; if credit was not available, respondents should have initiated recovery proceedings under tax law rather than imposing negative balances. Consequent relief: the impugned administrative order effecting negative credit was set aside and quashed, restoring the petitioners entitlement to available electronic credit.

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Issues:
The issues involved in the judgment are the blocking of input tax credit without a show cause notice and the contravention of Rule 86(A) of the CGST Rules 2017.

Blocking of Input Tax Credit Without Show Cause Notice:
The petitioner challenged the action of blocking input tax credit without issuing a show cause notice. The respondents blocked the credit without following due process, which was deemed violative of principles of natural justice. The court ruled that such action was per se bad in law and directed the withdrawal of the negative block on the electronic credit ledger.

Contravention of Rule 86(A) of CGST Rules 2017:
The respondents' decision to make a negative credit entry in the electronic credit ledger was found to be in violation of Rule 86(A). The court emphasized that the rule empowers the officer to disallow debit from the ledger for an amount equivalent to fraudulently availed credit, not to insert a negative balance. The judgment highlighted that the rule does not allow for blocking future credit availing and should be strictly governed by specific statutory language.

Decision Based on Precedents:
The court referred to a recent decision of the Division Bench of the Gujarat High Court, which emphasized the limited scope of invoking Rule 86(A) and the need for strict adherence to its provisions. The judgment reiterated that the rule should be applied only when credit is available in the electronic credit ledger and not for debarring future credit utilization.

Conclusion:
The writ petition succeeded, and the impugned order was set aside. The court directed the respondents to withdraw the negative block on the electronic credit ledger and refund the amount deposited by the petitioner. The judgment emphasized that the respondents could have pursued appropriate recovery proceedings under Sections 73 or 74 instead of invoking Rule 86(A) when no input tax credit was available in the petitioner's ledger. The respondents were instructed to recall the blockage order immediately, with the right to take lawful action reserved.

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