TaxTMI 
TaxTMI 
TaxTMI 
2022 (2) TMI 843
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....ledger of the Petitioners as visible from the extract of credit ledger annexed at Annexure-A; (C) Ex parte ad interim relief in terms of prayer-B may kindly be granted; (D) Such further relief(s) as deemed fit in the facts and circumstances of the case may kindly be granted in the interest of justice for which act of kindness your petitioners shall forever pray." 2. The facts, giving rise to this litigation, may be summarized as under; 2.1 The writ applicant No.1 is a private limited company. The writ applicant No.2 is one of the Directors and share holder of the writ applicant No.1-Company. The Company is engaged in the business of manufacture and sale of MS Billets. It is not in dispute that the Company is registered under the GST Act. 2.2 It appears from the materials on record that at the relevant point of time when the writ applicants attempted to file their return for the month of September, 2021, there was no credit balance in the electronic credit ledger. Despite the same, the portal displayed a message that the electronic credit ledger had been blocked by the respondent No.2. It was further noticed by the writ applicants that a negative balance had been entered in t....
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....it applicants in exercise of powers under Rule 86-A of the Rules 2017 is in accordance with law and needs no interference. 8. Mr. Sharma, the learned AGP, appearing for the State has filed his written submissions as under; "The department proposes to file the following written submissions with reference to the controversy and the question of law involved in the present petition. The submissions are restricted to the questions of law. 1. It is submitted that the main controversy involved in the present petition is surrounding the Rule-86A of the GST Rules, 2017, wherein, in the petition the petitioner has prayed that the blocking was not permissible and it amounts to negative block of the 'Electronic Credit Ledger' and that the invocation of powers under Rule-86A was not proper and not tenable in the eyes of law. 2. It is respectfully submitted that the petitioner has tried to read into the provision and has also tried to create an artificial interpretation by basically harping upon two points one that the debit can be only restricted if there is balance and second it amounts to recovery, which otherwise, has to be done after issuance of show-cause notice and final orders u/s....
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....ule in question i.e. Rule86A has given broad powers to ensure that the debits are not permitted at a stage before the proceedings attain finality and therefore, it cannot be termed as recovery. In a given case if someone has already availed an alleged wrong claim and utilized the same it would not mean that now the debits to that extent cannot be freezed or restricted by operation of Rule-86A as there were no balances on the day reasons were recorded. In fact, the returns which would be filed may result into accumulation of the amounts in the electronic credit ledger. It is submitted that the ledger accounts are a continuous process, wherein, the amounts get accumulated and are utilized by the registered person and therefore, not permitting debit of a particular amount of particular quantum has nothing to do with the available balance or non-availability of balance. 8. As far as the Rule-86A and its overall operation and exercise of powers are concerned, the same has been comprehensively covered by the judicial dictum of the Hon'ble Court in the Case of 'M/S S.S. Industries Versus Union Of India' 'Special Civil Application No.8841 of 2020' and 'Special Civil Application No.8163 o....
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.... of an amount equivalent to such credit in electronic credit ledger...' iii. There is a reason to believe that around Rs. 20lakhs odd amount has been wrongfully availed as ITC and the balance in the electronic credit ledger is NIL even in such a scenario, the department would be restricting and not permitting the debits to the tune of Rs. 20 lakhs and as cited hereinabove, there is neither a bar in exercising of such powers nor it can be said to be bad. To further support the said contention the last eventuality is cited as under: iv. There is a reason to believe that around Rs. 20lakhs odd amount has been wrongfully availed as ITC and the balance in the electronic credit ledger becomes NIL and thereafter, upon filing returns there is again a deposit of around Rs. 25 lakhs odd and the department exercises powers under Rule86A after the deposits of Rs. 25 lakhs odd, whether, the petitioner can claim that the balance had gone NIL and the ITC was already utilized and therefore, this particular amount which is of a subsequent transaction cannot be withheld for debits under section-49. As per the humble submission, the answer would be NO the petitioner would not be in the positi....
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.... mentioned in section 49. ITC Utilization 12. The ITC is utilized in the following sequence to set off the CGST liability: (1) The ITC standing under the CGST is used to set off the CGST output liability. (2) Then, the ITC standing under the IGST is used to set off the remaining CGST output liability. 13. Further, the ITC is utilized in the following sequence to set off the SGST liability: (1) The ITC standing under the SGST is used to set off the SGST output liability (2) Then, the ITC standing under the IGST is used to set off the remaining SGST output liability 14. Finally, the ITC is utilized in the following sequence to set off the IGST liability: (1) The ITC standing under the IGST is used to set off the IGST output liability (2) The ITC standing under the CGST is used to set off the remaining IGST output liability 15. Finally, the ITC standing under the SGST is used to set off the remaining IGST output liability. 16. Furthermore, no set off is available between the CGST and SGST. 17. Hence, from the above, it is clear how the electronic credit ledger is used while making the tax payment. What is Electronic Credit Ledger in GST? 18. The electronic credit ....
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....reads thus; "(e) the central tax shall not be utilised towards payment of State tax or Union territory tax; and (f) the State tax or Union territory tax shall not be utilised towards payment of central tax." ANALYSIS 26 Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether it is open for the authority to block the electronic credit ledger in exercise of powers under Rule 86-A of the Rules, more particularly, when the balance in such ledger is Nil. 27. Rule 86-A of the GST Rules reads thus; "(1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as- a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36- i. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or ....
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...., a proper officer can invoke Rule 86A. Upon invocation of Rule 86A, a proper officer can - a) Disallow debit from the electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount. b) Such restriction should be for an amount equivalent to the amount claimed to have been fraudulently availed or is ineligible 31. Rule 86A (1) of CGST Rules, 2017 is broadly divided into two parts. The opening part of the rule deals with the conditions required to be fulfilled in order to invoke the powers under the rule. The second part of the rule provides for the consequences in case Rule 86A is invoked. 32. In other words, in case the conditions prescribed for the invocation of Rule 86A are not fulfilled, the officer cannot invoke the rule, and in such scenario, the consequences provided in the rule becomes ex-facie inapplicable. 33. One of the primary conditions in order to invoke Rule 86A is that the Credit of input tax should be available in the electronic credit ledger. Further, such credit should be claimed to have been (supported by reason to believe recorded in writing) fraudulently availed. 34. Accordingly, in case wher....
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....are provided in Rule 10-A. By notification dated the 11th October, 1969. 12th Amendment of the Rules was introduced, whereby Rules 10 and 10-A were amended. The purpose of this amendment is mentioned in a copy of the letter dated the 30th September, 1969 (annexure 13) from the Ministry of Finance. Department of Revenue and insurance, to all Collectors of Central Excise. The amended Rule 10-A provided for giving of a notice of show cause to the assessee in the matter of deficiency of duty. But it would be noticed from the language of Rules 10 and 10-A even as it stood after the 12th Amendment that they do not apply to a case which is covered by the Rules incorporated in Chapter VII-A introduced for the first time in the Rules on 14-7-1969. That is the relevant Chapter which deals with clearance of goods on provisional determination of the excise duty payable by the assessee himself. And, as I read these Rules, they are the only relevant Rules some of which will be specifically referred to in this judgment. The heading of Chapter VII-A is-- "Removal of excisable goods on determination of duty by producers, manufacturers or private warehouse licensees." The provisions of Chapter V....
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....the assessment memorandum on the return. A copy of the return so completed shall be sent to the assessee. (2) The duty determined and paid by the assessee under Rule 173-F shall be adjusted against the duty assessed by the proper officer under Sub-rule (l) and where the duty so assessed is more than the duty determined and paid by the assessee, the assessee shall pay the deficiency by making a debit in the account-current within ten days of receipt of copy of the return from the proper officer and where such duty is less, the assessee shall take credit in the account-current for the excess on receipt of the assessment order in the copy of the return duly counter-signed by a Superintendent of Central Excise." The proper officer is to assess the duty due on the goods removed and complete the assessment memorandum on the return filed by the assessee. A copy of the return so completed has to be sent to the assessee. Then it is the obligation of the assessee to pay the deficiency, if any by making a debit in the account-current within ten days of the receipt of the copy of the return from the proper officer and where the amount paid is in excess, the assessee has to make a credit en....
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.... modes of recovery, one of the methods of recovery of sums due to the Government provided under Section 11 is that the officer concerned may deduct the amount of deficiency from any amount which may be payable to the person from whom the deficiency is recoverable. If suppose, a sum of Rs. 50,000/- was payable to the assessee by the Department then the officer concerned could deduct the amount of deficiency, say. Rs. 30,000/- from that amount and would pay the balance of Rs. 20,000/-. But then it is difficult to interpret this provision to say that the proper officer can himself make the debit entries in the account current maintained by the assessee under Rule 173G. The proper officer may inform the assessee that under various accounts-current say, if a sum of Rs. 50,000/- is in deposit, he would adjust the amount of Rs. 30,000/- payable by the assessee on account of deficiency in the duty paid from the sum of Rs. 50,000/- and thenceforward would treat the amount of deposit only at Rs, 20,000/-. If he does so then the assessee in order to carry on his business further, in accordance with Chapter VII-A would be obliged to show in his account books the sum of deposit, as determined b....
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....Rule 86A is not the rule which provides for debarring the registered person from using the facility of making payment through the electronic credit ledger. In case the intention was to disallow future debits or credit in electronic credit ledger, the text of the rule would be entirely different. 39. Accordingly, even though Rule 86A may be invoked in very limited number of cases, this cannot be the basis to invoke the rule in the cases which are not supported by the plain language of the rule. 40. The Rule 86A empowers the proper officer to disallow debit from the electronic credit ledger for an amount equivalent to the amount claimed to have been fraudulently availed. Accordingly, the rule provides for restriction on an amount and not on the very credit which is fraudulently availed. Accordingly, the rule can be invoked even when the credit fraudulently availed is utilised. 41. In the aforesaid regard, first the language of an amount equivalent appears in the later portion of the rule which provides for the consequences in case the conditions for invocation of the rule are satisfied. As already discussed, the rule itself can be invoked only in case where the credit of input tax....
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....ectronic credit ledger". It appears on plain reading of the heading itself that Rule 86-A can be invoked only if the amount is available in the electronic credit ledger and not otherwise. It is a settled rule of interpretation that the section heading or marginal note can be relied upon to clear any doubt or ambiguity in the interpretation of the provision to discern the legislative intent. [vide Uttamdas Chela Sunder Das vs. SGPC (1996) 5 SCC 71 and Bhinka & Ors. vs. Charan Singh, AIR 1959 (SC) 906] 46. In the aforesaid context, we may also refer to two more decisions of the Supreme Court (i) Commissioner of Income Tax, Madras vs. Kasturi & Sons Ltd., (1999) 3 SCC 346 and (ii) Kapil Mohan vs. Commissioner of Income Tax, Delhi (1999) 1 SCC 450. 47. In Kasturi & Sons (supra), the Supreme Court observed in Para-9 as under; "9. The principle that a taxing statute should be strictly construed is well settled. In Principles of Statutory Interpretation by Justice G.P. Singh, Sixth edition 1966, the law is stated thus:- "The well-established rule in the familiar words of LORD WENSLEYDALE, reaffirmed by LORD HALSBURY and LORD SIMONDS, means: "The subject is not to be taxed wit....
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....nt of the provision. Since the plain language of Rule 86A does not permit its exercise without there being availability of credit, the same could not have been invoked in the present case. 50. Our attention has also been drawn to the Circular No.4 of 2021 dated 24.05.2021 issued by the Office of the Commissioner of State Tax, State Goods & Services Tax Department, Kerala. The circular has explained what would be the position if the balance in the electronic credit ledger is Nil. It would be appropriate to quote the entire circular placing much emphasis on Clauses-12 and 14 respectively therein. The same reads thus; "Office of the Commissioner of State Tax, State Goods and Services Tax Department, Kerala, Tax Towers, Karamana, Thiruvananthapuram Dated: 24/05/2021 CIRCULAR No.04 /2021 Sub: Blocking of Credit under Rule 86A of SGST Rules- 2017 - Guidelines issued-reg: Ref: 1. order No. CT/17859/2018-A2 GSTC dated 22/01/2020 2. SoP for blocking/ unblocking of ITC 1. As per the new Rule 86A inserted in the GST Rules; [86A. Conditions of use of amount available in electronic credit ledger.- (1) The Commissioner or an officer authorised by him in this behalf, not below th....
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....ailed on the strength of tax invoices or debit notes or any other documents prescribed under rule 36 issued by a registered person who has been found non- existent or not conducting any business from the place for which registration has been obtained or without receipt of goods or services or both. 6. With regard to (b), major cases should be identified from the red flag reports or other reports available in the back end. while taking figures from 2A, it shall be ensured that the 2A is updated. Such blocking shall be in terms of Rule 36(4) of the KSGST AND CGST rules and Circular No.123/42/2019- GST dated 11th November, 2019 of CBIC. 7. In respect of cases initiated by the Jurisdictional officers/proper officers, the request for blocking of credits shall be sent to the District Joint Commissioners concerned(Authorized officers) who will examine the same and will take necessary steps to block the ITC in the portal as per the SoP issued. 8. In respect of the requests for blocking ITC received from CBIC, the same has to be received and processed by Economic Intelligence Wing in the office of the Commissioner of State Taxes and they will examine the case and if found justified, i....
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....jurisdictional proper officer. 14. Blocking of credit under Section 86A is an emergency measure to prevent the taxpayer from using the credit availed fraudulently or ineligible credit taken. Hence nothing prevents the proper officer from taking any other suitable actions under any other provisions of GST laws including determination of tax under section 73, 74, demand and recovery, provisional attachment of property etc. 15. ITC blocking is a temporary step and should not be seen as equivalent to recovery of tax. Action under section 73/74 is the full and final demand creation exercise as per GST Law. Both are mutually exclusive and SCN under section 73/74 should be issued immediately upon completion of investigation in all cases." 51. The circular referred to above fortifies the contention raised by Mr. Sheth. Clause 12 of the circular, referred to above, clarifies that if there is Nil or insufficient balance in a particular tax head in the electronic credit ledger, then the balance in another tax head can be blocked only if the cross-utilization from such head is permissible in law. Such cross-utilization between CGST and SGST is not permissible. The circular has clarified t....
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....ed by the Central Board of Indirect Taxes & Customs dated 2nd November, 2021. This circular is in the form of guidelines for disallowing the debit of electronic credit ledger under Rule 86-A of the CGST Rules, 2017. It appears that such circular, providing for guidelines, came to be issued pursuant to the directions issued by this very High Court in the case of S.S. Industries vs. Union of India, reported in (2021) 87 GSTR 71 (Guj.). Paras-3.1.2, 3.1.3 and 3.1.4 are relevant. We quote as under; "3.1.2 Perusal of the rule makes it clear that the Commissioner, or an officer authorised by him, not below the rank of Assistant Commissioner, must have "reasons to believe" that credit of input tax available in the electronic credit ledger is either ineligible or has been fraudulently availed by the registered person, before disallowing the debit of amount from electronic credit ledger of the said registered person under rule 86,4. The reasons for such belief must be based only on one or more of the following grounds: a) The credit is availed by the registered person on the invoices or debit notes issued by a supplier, who is found to be non-existent or is found not to be conducting an....
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.... may be summarized as under:- (I) The invocation of Rule 86A of the Rules for the purpose of blocking the input tax credit may be justified if the concerned authority or any other authority, empowered in law, is of the prima facie opinion based on some cogent materials that the ITC is sought to be availed based on fraudulent transactions like fake/bogus invoices etc. However, the subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. It is not any and every material, howsoever vague and indefinite or distant remote or far-fetching, which would warrant the formation of the belief. (II) The power conferred upon the authority under Rule 86A of the Rules for blocking the ITC could be termed as a very drastic and far-reaching power. Such power should be used sparingly and only on subjective weighty grounds and reasons. (III) The power under Rule 86A of the Rules should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. (IV) The aspect of availing the credit and utilization of credit are t....