2024 (12) TMI 143 - HC - GST

Electronic credit ledger blocking valid despite earlier search by different authorities under Rule 86A GST

Tvl. Skanthaguru Innovations Private Limited Versus Commercial Tax Officer, Assistant Commissioner (ST), Superintendent of GST, Principal Commissioner of GST & Central Excise, Chennai

HC dismissed petition challenging Form ASMT-10 notice blocking electronic credit ledger. Court held State Authorities acted within jurisdiction in ... Challenge to impugned notice in the Form ASMT-10 dated 26.09.2024 issued by the 1st respondent - unblocking of electronic credit ledger/electronic cash ledger - main grievance of the petitioners is that the petitioner's ECL has been blocked without the availability of any credit, which is totally contrary to the provisions of Rule 86A of GST Rules, 2017. Whether the State Authorities are empowered to issue Form GST ASMT-10 dated 26.09.2024, subsequent to the search conducted by the Central Authorities on 13.03.2024? - HELD THAT:- At the time of issuance of ASMT-10 by the State Authorities, i.e., 26.09.2024, only the search was conducted by the Central Authorities and no notice was issued by them with regard to the wrongful availment of a sum of Rs. 13.10 Crores. Therefore, under these circumstances, one cannot assume or presume that in the present case, the cross empowerment will come into picture against the State Authorities - the State Authorities cannot proceed based on the Form GST ASMT-10, however, in the absence of any further orders, subsequent to the issuance of ASMT-10 by the State Authorities, it is pre-mature to decide as to whether the State Authorities are barred by cross empowerment or not. Even if the State Authorities are barred by cross empowerment for initiation of proceedings against the petitioner, the blocking of ITC will always be the domain of State Authorities, which was also accepted by the Central Authorities, since the petitioners are registered person of the State Authorities - this Court is of the considered view that in this case, the State Authorities have acted well within their power/jurisdiction and it is pre-mature to come to the conclusion as to whether the cross empowerment will come into picture or not. Whether the blocking of ITC by virtue of the intimation dated 24.06.2024, 09.09.2024 and 10.09.2024 is in accordance with the provisions of Rule 86A of the GST Rules, 2017? - HELD THAT:- A reading of the Rule 86A would show that if the Commissioner or an Officer, not below the rank of Assistant Commissioner, having reason to believe that the credit of ITC available in ECL has been fraudulently availed or ineligible under the circumstances mentioned in Clauses (a) to (d) of Rule 86A(1) of GST Rules, for the reasons to be recorded in writing, not allow the debit of amount equivalent to such credit in ECL for discharge of any liability under Section 49 of the GST Act. A conjoint reading of 1st and 2nd parts of Rule 86A would clearly reveal that the word “available in the ECL” referred in 1st part would mean that the amount available after the fraudulent availment of credit at any point of time, whether it was available in the ECL or utilised at the time of passing the blocking orders. Hence, the 2nd part of Rule 86A empowers the Authorities not to allow the debit of amount equivalent to the fraudulently availed credit for discharge of liabilities under Section 49. If it was already utilised, the Officials are also empowered to pass blocking orders to the extent of amount equivalent to such credit, which was already utilised, along with the unutilised fraudulently availed ITC amount available in the ECL at the time of passing the blocking orders. This Court is of the considered view that the negative blocking is well within the scope of provisions of Rule 86A of GST Rules. The blocking of ITC can be made to the extent of wrongful availment of credit, for which Rule 86A empowers State Authority not to allow debit of the amount equivalent to such wrongful availment of credit to the extent of available ECL at any point of time. Therefore, at the time of blocking, the availability of ITC in the ECL is immaterial - the Authorities are empowered to pass the blocking orders, in the present case, up to the maximum extent of a sum of Rs. 13.10 Crores towards the wrongful availment of credit. Whether the issuance of Form GST DRC-01A pertaining to a sum of Rs. 71,798/- and remitting of the said amount by virtue of Form GST DRC03 and dropping of proceedings would amount to determination of the entire issue in Form GST ASMT-10? - HELD THAT:- It is for the State Authorities to decide as to whether all the issues pertaining to Form GST ASMT-10 issued by them are covered by Form GST DRC-01A issued by the Central Authorities, for which, the petitioner has to file their reply. Upon considering the said reply filed by the petitioner, the State Authorities has to consider the same and decide with regard to the continuation of proceedings initiated by them - this Court finds no force in the submissions made by the learned Senior counsel appearing for the petitioner on all the three issues and accordingly, the same is rejected. Therefore, this Court is of the considered view that this writ petition is liable to be dismissed. Petition dismissed. Issues Involved:1. Whether the State Authorities are empowered to issue Form GST ASMT-10 dated 26.09.2024, subsequent to the search conducted by the Central Authorities on 13.03.2024Rs.2. Whether the blocking of ITC by virtue of the intimation dated 24.06.2024, 09.09.2024, and 10.09.2024 is in accordance with the provisions of Rule 86A of the GST Rules, 2017Rs.3. Whether the issuance of Form GST DRC-01A pertaining to a sum of Rs. 71,798/- and remitting of the said amount by virtue of Form GST DRC03 and dropping of proceedings would amount to determination of the entire issue in Form GST ASMT-10Rs.Issue-wise Detailed Analysis:Issue No. 1: Empowerment of State Authorities to Issue Form GST ASMT-10The court examined whether the State Authorities were empowered to issue Form GST ASMT-10 on 26.09.2024, following a search by the Central Authorities on 13.03.2024. The Central Authorities conducted a search and recorded a statement on 14.03.2024, identifying wrongful ITC availment of Rs. 6.33 Crores. The State Authorities later issued Form GST ASMT-10 for Rs. 13.10 Crores. Although the issues raised by both authorities were similar, the amounts and periods differed. The court concluded that the State Authorities had the power to issue Form ASMT-10 for the difference in amount and period, as no notice for Rs. 13.10 Crores had been issued by the Central Authorities at the time of the State's action. Thus, the State Authorities acted within their jurisdiction, and the concept of cross-empowerment did not apply.Issue No. 2: Blocking of ITC under Rule 86A of GST Rules, 2017The court analyzed whether the blocking of ITC by the State Authorities was in accordance with Rule 86A of the GST Rules, 2017. The petitioner argued that the blocking orders were issued without any ITC available in the ECL, which was contrary to Rule 86A. The court examined Rule 86A, which allows blocking if the Commissioner has reasons to believe that ITC has been fraudulently availed. The court noted that the rule permits blocking not only for available ITC but also for equivalent amounts already utilized. The court disagreed with the interpretations by the Gujarat and Delhi High Courts, which focused solely on the first part of Rule 86A, and concluded that negative blocking is permissible under Rule 86A. The State Authorities were justified in blocking ITC to the extent of wrongful availment, even if the ITC was utilized at the time of blocking.Issue No. 3: Determination of the Entire Issue in Form GST ASMT-10Regarding the issuance of Form GST DRC-01A for Rs. 71,798/- and its impact on the determination of the entire issue in Form GST ASMT-10, the court observed that the DRC-01A pertained only to a specific amount, while the ASMT-10 covered a larger sum of Rs. 13.10 Crores. The State Authorities were yet to initiate proceedings for the remaining issues. The court noted that the Central Authorities issued Form GST DRC-01A on 08.10.2024, and it was for the State Authorities to determine if all issues in ASMT-10 were covered by the Central Authorities' actions. The petitioner was advised to file a reply, and the State Authorities were to consider it before deciding on the continuation of proceedings.Conclusion:The court found no merit in the petitioner's submissions on all three issues and dismissed the writ petition. The court held that the State Authorities acted within their jurisdiction, the blocking of ITC was permissible under Rule 86A, and the proceedings related to ASMT-10 were not determined solely by the issuance of DRC-01A for a smaller amount. The court emphasized the interpretation of Rule 86A in its entirety to uphold the legislative intent and protect revenue interests.