ITC Blocking and Cancellation of GST

[Gourav Ravi Garg]

Respected experts, I have a query. I am getting my GST cancelled. I have the opening balance in the march of 1.8Lakh approx.; but my GST was blocked by the officer in the April of Rs. 18.5 Lakh approx. I am unable to understand the situation. Till the ITC gets unblocked, the number will not be cancelled.

[YAGAY andSUN]

As per GST law, blocking of ITC under Rule 86A cannot legally exceed the actual balance available in the Electronic Credit Ledger at the relevant point of time. If the available ITC balance in March was approximately Rs. 1.80 Lakhs, blocking of ITC amounting to approximately Rs. 18.50 Lakhs appears to be excessive and beyond the admissible ledger balance.

Further, cancellation of GST registration cannot be indefinitely withheld merely on account of blocked ITC, especially where the disputed credit is under departmental restriction and not available for utilization by the taxpayer.

The appropriate legal course is:

1. Reconciliation of Electronic Credit Ledger for the relevant tax period.
2. Verification of the order/intimation issued under Rule 86A.
3. Restriction of blocked ITC only to the extent actually lying in the ledger.
4. Filing of reply/representation seeking rectification of excess blocking.
5. Proceeding with GST cancellation subject to determination of final liability, if any.

In law, blocked ITC and cancellation proceedings are separate issues, and cancellation cannot be arbitrarily kept pending without adjudication of the disputed credit.

[YAGAY andSUN]

You may also submit following draft letter to get the clarification on this matter.

To,

The Proper Officer,

GST Department

Subject: Request for Review of Blocked ITC and Processing of GST Cancellation

Respected Sir/Madam,

It is respectfully submitted that the Applicant has applied for cancellation of GST registration. However, it has been observed that Input Tax Credit ("ITC") amounting to approximately Rs. 18.50 Lakhs has been blocked by the Department during April.

In this regard, it is pertinent to state that the available balance in the Electronic Credit Ledger as on March was only approximately Rs. 1.80 Lakhs. Accordingly, the blocked amount appears to be substantially in excess of the actual ITC balance available in the ledger.

The Applicant is unable to ascertain the legal and factual basis for such blocking, particularly when the alleged blocked credit exceeds the admissible ledger balance. It is submitted that action under Rule 86A of the CGST Rules is required to be restricted to the extent of ITC actually available in the Electronic Credit Ledger.

It is further submitted that due to the said blockage, the GST cancellation proceedings are not being concluded, thereby causing undue hardship to the Applicant. The issue relating to blocked ITC and cancellation of registration are independent proceedings and the cancellation application ought not to remain pending indefinitely without adjudication or reconciliation of the disputed credit.

The Applicant therefore requests your good office to kindly:

1. Verify and reconcile the Electronic Credit Ledger;
2. Provide the basis/order under which ITC has been blocked;
3. Review and rectify the excess blocking, if any; and
4. Process and conclude the GST cancellation proceedings in accordance with the provisions of the CGST Act and Rules.

Your kind consideration and early action shall be highly appreciated.

Yours faithfully,

Authorized Signatory

[KASTURI SETHI]

Also go through the following Board's Circulars :-

(i) CBEC-20/16/34/2019/GST/802 dated 24.05.2021

(ii) 88/07/2019-GST dated 1.2.2019

(iii) 69/43/2018-GST dated 26.10.2018

As per Section 29, the registration can be cancelled even if tax amount is pending as cancellation does not affect the liability of the assessee to pay tax and other dues.

[Shilpi Jain]

First of all blocking credit more than balance available is not allowed in law. There are numerous HC decisions on this aspect. Apply for cancellation, still officer will not cancel. So you would have to approach high court to resolve the blocking of credit and then apply for cancellation

AI Summary

Input tax credit blocking under Rule 86A cannot exceed ledger balance, and GST cancellation may proceed separately. Blocking of input tax credit under Rule 86A is confined to the amount actually available in the Electronic Credit Ledger and cannot exceed the existing balance. Excess blocking requires reconciliation, verification of the blocking order, and rectification to the extent the restriction goes beyond available credit. Cancellation of GST registration is a separate proceeding and should not remain pending indefinitely merely because ITC has been blocked, since cancellation does not affect the taxpayer's underlying liability.