2026 (1) TMI 1558 - HC - GST

Withholding of electronic credit ledger and restriction on ITC use: HC directs adjudication within a week and possible unblocking.

Rule 86A of the CGST/WBGST Rules permits revenue to withhold debit from a registered taxpayer's electronic credit ledger where reasons are recorded to ... Withholding of electronic credit ledger / restriction on use of input tax credit - obligation to adjudicate upon alleged fraudulent or ineligible ITC - interim protective measure pending adjudication - Proper Officer / Assistant Commissioner of State Tax - writ jurisdiction of the High Court - HELD THAT:- The Provisions of Rule 86A of the CGST Rules, 2017/WBGST Rules, 2017 provide for conditions of use of any amount available in the electronic credit ledger of the registered tax payer. In terms thereof if the revenue authorities mentioned therein, have reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible for any of the reasons mentioned in Clauses (a) to (d) of Rule 86A(1) then the said revenue authorities may upon recording reasons withhold debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability by the registered tax payer. Such a provision is clearly aimed at securing the tax apprehended to be in default either due to fraudulent availment of ITC or availment of ITC despite ineligibility. It is therefore, supposed to be an interim measure pending adjudication. Once this provision is resorted to, it cannot be said by the Proper Officer that adjudication itself cannot be done. In such view of the matter, the Proper Officer’s observation that the act of violation is not suitable for adjudication‟ cannot be sustained. This court is cognizant of the aspect that the restriction imposed under Rule 86A can be continued for one year but in the case at hand the Proper Officer has simply abdicated his duty to adjudicate. It is noticed that blocking of the petitioners electronic credit ledger has already been in place for a little more than seven months as of now. By blocking the electronic credit ledger of a registered tax payer and then continuing with the same by observing that there will be no adjudication of the issues involved would be against the very grain of the said Act of 2017 itself. In such view of the matter, the Proper Officer concerned is directed to initiate adjudication proceedings by issuing appropriate show cause notice to the petitioners within a week from the date of communication of this order. It is made clear that if the adjudication proceedings are not concluded within the period mentioned in this order, the Proper Officer shall have to unblock the electronic credit ledger of the petitioners. Writ petition being stands disposed of. Issues: Whether blocking of the assessee's electronic credit ledger under Rule 86A without initiating or concluding adjudication proceedings is permissible, and whether the Proper Officer is obliged to initiate adjudication once debit is withheld.Analysis: Rule 86A permits withholding of debit from the electronic credit ledger where revenue authorities have reasons to believe that ITC has been fraudulently availed or is ineligible; the provision is intended as an interim measure to secure tax pending adjudication. The statutory scheme contemplates that withholding of credits under Rule 86A should ordinarily be followed by initiation and conclusion of adjudication under Sections 73 or 74 of the CGST Act. A continued blockade of the electronic credit ledger coupled with a refusal to initiate adjudication amounts to abdication of the statutory duty to adjudicate and frustrates the remedial and procedural framework of the Act.Conclusion: The Proper Officer's refusal to initiate adjudication while maintaining the block on the electronic credit ledger is not sustainable; the Proper Officer is directed to issue show cause notice and conclude adjudication within the timeframes specified by the Court, failing which the electronic credit ledger must be unblocked. The relief granted is in favour of the assessee.