TaxTMI 
TaxTMI 
2022 (2) TMI 843
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....th withdraw the negative block of the electronic credit 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 ....
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....Mr. Sharma would submit that the action of blocking the electronic credit ledger of the writ 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....
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....d every eventuality and therefore, for such eventualities, interpretation is required to meet the ultimate ends of justice. 7. It is submitted that the rule 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 di....
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....ul availment. There is no usage of words 'amount as 'available' in ledger account ' etc Certain relevant words are reproduced hereunder: '...may, for reasons to be recorded in writing, not allow debit 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 w....
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....s the input tax credit (ITC) details. These ITC details are self assessed by the taxpayer via the monthly returns. Furthermore, these details get reflected in the electronic credit ledger. And the amount of ITC in the electronic credit ledger gets utilized as per the rules 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 stan....
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....edger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed." 24. Sub-section (4) of Section 49, referred to above, provides that the amount available in the electronic credit ledger may be utilized for making payment of the output tax credit. Thus, the input tax credit available is the actual amount of credit lying in the ledger prior to its utilization/debit. 25. Sub-section (5)(e) and (f) of Section 49 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....
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....f Rule 86A(1) of CGST Rules, 2017, it transpires that the power conferred under Rule 86A can be exercised by the Commissioner or an officer authorised by him (not below the rank of an Assistant Commissioner). Further the powers can be exercised if the following cumulative conditions are satisfied. i) Credit of input tax should be available in the electronic credit ledger, ii) The Commissioner of an officer authorised by him should have reason to believe that such credit has been fraudulently availed or is ineligible, iii) The reason to believe are be recorded in writing. 30. In case the above referred conditions are satisfied, 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 f....
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....) Whether the debit entries (annexures 3 to 6) could be made by respondent No. 1 in the accounts maintained by the petitioner in its various factories in exercise of his power under Section 11 of the Act? (ii) Whether the demand in respect of the Chemical Factory could be realised by adjustment and the making of the debit entries in the accounts of the other three factories ? 5. Rule 9-B deals with provisional assessment of duty. But this provisional assessment is to be made by the proper officer and not by the assessee himself. The matter of recovery of duties or charges short-levied or erroneously refunded is dealt with in Rule 10 and residuary powers for recovery of sums due to Government 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 deficie....
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....ts maintained and returns prepared by him in regard to the production, manufacture, storage, delivery or disposal of the goods, including the raw-materials. The return has to be filed in a proper form under Sub-rule (3). The assessee is obliged to produce on demand to the Central Excise Officers or the audit parties deputed by the Collector the accounts and returns for the scrutiny of the officers or the audit parties as the case may be under Rule 173-G (6). I shall quote Rule 173-1. "(1) The proper officer shall on the basis of the information contained in the return filed by the assessee under Sub-rule (3) of Rule 173-G and after such further inquiry as he may consider necessary, assess the duty due on the goods removed and complete 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 ....
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.... of Revenue to levy such duty or require the payment of such sums may deduct the amount so payable from any money owing to the person from whom such sums may be recoverable or due which may be in his (hands or under his disposal or control, or may recover the amount by attachment and sale of excisable goods belonging to such person; and if the amount payable is not so recovered he may prepare a certificate signed by him specifying the amount due from the person liable to pay the same and send it to the Collector of the district in which such person resides or conducts his business and the said Collector on receipt of such certificate, shall proceed to recover from the said person the amount specified therein as if it were an arrear of land revenue." Apart from the other 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, ....
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.... power under Section 11 an officer could make a debit entry in the account maintained under Rule 173-G of the Rules." 38. The revenue may legitimately argue that such an interpretation may make the entire Rule 86A toothless as parties can claim and immediately utilise the credit fraudulently availed by filing monthly returns. Accordingly, it may be practically impossible to invoke Rule 86A in large number of cases. This may be the actual implication of the present interpretation, however, the Government in its wisdom has framed Rule 86A and this rule is not framed to recover the credit fraudulently availed. In case where credit is fraudulently availed and utilised, appropriate proceeding under the provisions of section 73 or section 74, as the case may be, can be initiated. Secondly, 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 t....
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....edit ledger is extremely harsh in nature. The rule outreaches the detailed procedure provided in the legislature for determination of input tax credit wrongly availed or utilised provided in Section 73 and 74 of CGST Act and empowers the officer to unilaterally impose certain restrictions in compelling circumstances. In other words, Rule 86A is invoked at a stage which is anterior to the finalization of an assessment or the raising of a demand. Accordingly, it should be governed strictly by specific statutory language which conditions the exercise of the power. 45. Mr. Sheth, the learned counsel appearing for the writ applicants is right in his submission that the heading of Rule 86-A itself is suggestive of its scope and applicability. The heading reads "conditions of use of amount available in electronic 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 in....
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.... avail the Revenue. The legal representative of a deceased depositor cannot be made to pay income-tax upon the annuity only because the original depositor had not been required to pay income-tax on the amount of the annuity deposit, on the basis that what the Revenue had lost out on then should be recouped to it now. The original depositor did not voluntarily make the annuity deposit; he was required by the Act and Scheme to do so. Insofar as he was concerned, the Act provided that the annuity he received would be taxable as income. Whether advisedly or otherwise, the Act did not provide that the annuity would be taxed as income in the hands of his legal representative, and there it must remain." 49. Thus, the principle of law discernible from the aforesaid two decisions of the Supreme Court is that there can be no action based on any supposed intendment 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, St....
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....sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit. (3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction. 2. In order to streamline the process of blocking/unblocking of ITC as per the above rules, the following guidelines are issued; 3. Vide order No. CT/17859/2018-A2 GSTC dated22/01/2020 the Joint Commissioners of state tax has been authorized to perform the functions to be performed by Commissioner of State Tax under Rule 86A within their respective jurisdiction. 4. Detailed SOP has already been issued prescribing the manner of blocking /unblocking of ITC in the portal. 5. In Rule 86A, 4 scenarios has been mentioned for blocking of ITC. Out of the 4 scenarios, more importance has to be given for situation (a) and (c). It should be ensured that no input tax credit is availed 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 f....
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....osed by law on cross utilization of ITC. That is, as cross utilization of CGST credit to SGST liability and vice versa is not permitted by GST Laws. In case of blocking of CGST credit availed fraudulently, blocking of SGST credit shall not be done, if no credit is available in CGST tax head. As such, for blocking of IGST credit availed fraudulently, if there is no credit balance in IGST tax head, the amount equivalent to the credit fraudulently availed can be blocked from the ITC credit available in CGST head and/or SGST head and vise versa. 13. Any representation received from the taxpayer against blocking of ITC shall be disposed by the authorized officer within a reasonable time (say 15 days). The authorized officer, after considering the representation, may on being satisfied that the conditions stipulated under Rule 86A no longer exists, or found to be contrary to the belief that led to the blocking, unblock the credits as per Rule 86A (2) in the manner specified in the SOP, under intimation to concerned registered person and the jurisdictional proper officer. 14. Blocking of credit under Section 86A is an emergency measure to prevent the taxpayer from using ....
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....bmission that the authorities are not remediless with respect to the alleged wrongful availment of the input tax credit by the writ applicant. The admissibility of input tax credit can be verified through issuance of show-cause notice and, thereafter, with the adjudication of the liability. The authorities have ample powers of recovery including the power of provisional attachment under Section 83 of the CGST Act. However, the power under Rule 86A could not have been invoked in the absence of any credit balance in the electronic credit ledger. 54. We are not impressed with the submission of Mr. Sharma that the legislature has consciously used the expression "equivalent to such credit" instead of the words "equivalent to such "available" "credit". The emphasis which is sought to be placed by Mr. Sharma is on the non-usage of word "available". In our opinion, the expression "equivalent to such credit" necessarily implies the available credit. The absence of the word "available" would not make any difference. 55. Our attention has also been drawn to a circular issued by the Central Board of Indirect Taxes & Customs dated 2nd November, 2021. This circular is in the form of guidel....
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....is necessary for restricting him from utilizing/ passing on fraudulently availed or ineligible input tax credit to protect the interests of revenue. 3.1.4 It is reiterated that the power of disallowing debit of amount from electronic credit ledger must not be exercised in a mechanical manner and careful examination of all the facts of the case is important to determine case(s) fit for exercising power under rule 86A. The The remedy of disallowing debit of amount from electronic credit ledger being, by its very nature. Extraordinary' has to be resorted to with utmost circumspection and with maximum care and caution. It contemplates an objective determination based on intelligent care and evaluation as distinguished from a purely subjective consideration of suspicion. The reasons are to be on the basis of material evidence available or gathered in relation to fraudulent availment of input tax credit or ineligible input tax credit availed as per the conditions/grounds under sub-rule(1) of rule 86A." 56. In S.S. Industries (supra), this Court summarized its final conclusions as under; "65. Our final conclusions may be summarized as under:- (I) The invo....