AI Drafter 
TaxTMI 
TaxTMI 
2022 (3) TMI 1249
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....d subsequent returns without payment of negative ITC due to blocking of ITC by the respondents; d. Direct the respondent not to recover interest and penalty due to late filing of GSTR-3B return for the period April, 2021-22 and subsequent returns due to the reason of blockage of ITC by respondent. e. Pass any other order(s) as this Hon'ble Court may deem fit and more appropriate in order to grant interim relief to the petitioner; f. Any other and further relief deemed just and proper be granted in the interest of justice. g. To provide for the cost of this petition." 2 We need not delve much into the facts of this litigation as the principal issue involved in the present writ application is no longer res integra in view of the recent pronouncement of of this Court in the case of Samay Alloys India Pvt. Ltd. vs. State of Gujarat [Special Civil Application No.18059 of 2021 decided on 3rd February 2022]. 3 While issuing notice, a Coordinate Bench of this Court passed the following order dated 8th September 2021: "1. The petitioner is before this Court seeking to unblock the Input Tax Credit (ITC) amounting to Rs. 7,68,554/- of CGST an....
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....hus; "(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 ii. without receipt of goods or services or both; or b) 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 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or d) the registered person availing any credit of input tax is not in possession of....
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....itions 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 where (i) Credit of input tax is not available in the electronic credit ledger or (ii) such credit has already been utilised, the powers conferred under Rule 86A cannot be invoked. 35. Further, Rule 86A is not the rule which entitled the proper officer to make debit entries in the electronic credit ledger of the registered person. The rule merely allows the proper officer to disallow the registered person debit from the electronic credit ledger for the limited peri....
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....tice 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 VII-A are to apply to such excisable goods as the Central Government may, by notification in the Official Gazette specify in this behalf under Rule 173-A. Under Rule 173-B the assessee would file the list of goods for approval of the proper officer and he has to file a price list of goods assessable ad valorem under Rule 173-C. The assessee is under an obligation to furnish information regarding principal raw mater....
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....y 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 entry in that account. It would thus be seen that the account which is to be maintained by the assessee on his own provisional assessment of the amount of duty payable is subject to the control of the proper officer. To put it in other words, the scheme is like this. The assessee has to put sufficient amount in deposit in the treasury in the accountcurrent with the Collector. From....
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.... 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 accountcurrent maintained by the assessee under Rule 173- G. 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 by the proper officer. From a practical point of view, the same result can be achieved but by the legal and legitimate method just indicated. Instead of following this legitimate and legal method, respondent No. 1 adopted a course of making the entries himself which are annexures 3 to 6 in this case --a method which was not warranted by law. In annexure 1 he ....
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....ay 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 is available in the electronic credit ledger and accordingly, the consequence of the invocation cannot determine the applicability of the rule. Secondly, once the input tax credit is claimed in electronic credit ledger, the credit becomes part of one fungible pool and the credit cannot be separately identified. Having ....
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....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 without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words". In a classic passage LORD CAIRNS stated the principle thus: "If the person sought to be taxed comes within the letter of the l....
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....rcular 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 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 ....
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....n 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, it shall be forwarded to authorized District Joint Commissioner concerned who have the jurisdiction to block ....
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....ion 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 crossutilization between CGST and SGST is not permissible. The circular has clarified that the SGST credit ledger cannot be blocked if suff....
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....rd 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 nonexistent or is found not to be conducting any busine....
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....ns as under; "65. Our final conclusions 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. ....