TaxTMI 
TaxTMI 
2025 (11) TMI 486
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....ioners. 2. Issue raised in all the three writ petitions is whether Rule 86-A of Goods and Services Tax Rules, 2017 (for short Rules, 2017) permit the Commissioner or an officer authorized by him to block a taxpayer's ECL by an amount exceeding the credit available at the time of issuance of said order. It is to be noted that relevant provisions in the State Legislations i.e. (Punjab Goods and Services Tax Act, 2017) and (Haryana Goods and Services Tax Act, 2017) are identical. Reference is being made to Central Legislation. 3. It is a matter of record and not denied that negative balance created in ECL of each of petitioners is as under :- CWP Number Title Negative Input Tax Credit Amount Entry Dated Annexure 23675/2025 M/S. SHYAM SUNDER STRIPS V/S. UNION OF INDIA AND OTHERS Rs. 34,43,946/- 05.12.2024 P-7 29809/2025 M/S. SHIVAM TRADING CO. VS. UNION OF INDIA AND OTHERS Rs. 67,82,734/- 01.09.2025 P-4 19005/2025 KAMALDEEP METALICS PVT. LTD. VS. UNION OF INDIA AND OTHERS Rs. 16,49020/- 12.06.2025 P-2 4. ECL of petitioners was blocked on the premise of it being availed fraudulently and petitioners not being eligible f....
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....unsel for respondents per contra refuted arguments as raised on behalf of petitioners while submitting that action of blocking ECLs of petitioners in exercise of power under Section 86-A of Rules, 2017, is in accordance with law and calls for no interference by this Court. It was stated that there is no mandate to limit blocking of ECL only to the available balance or amount already present in the ECL. It was submitted that it cannot be the intention of the statute to protect a wrong doer or a person availing an incorrect or wrongful benefit which is impermissible, on the basis of a hyper- technicality. Rule 86-A of Rules, 2017 provides a salutary provision whereby Commissioner or an officer authorized by him in this behalf having reasons to believe that credit of input tax available in the ECL has been fraudulently availed or is ineligible, can block or freeze the amount in question for discharge of any liability under Section 49 of Rules, 2017 or for claim of any refund of an unutilized amount. 7. Learned counsel for respondent/s while referring to reply by way of affidavit dated 24.09.2025 on behalf of respondents (in CWP-23675-2025) vehemently argued that Rule 86-A of Rules,....
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.... (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,- (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; [(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;] (b) he has received the goods or services or both. [Explanation .- For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services- (i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise; (ii) where the services are pro....
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....e month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub- section (1) of section 37 till the due date for furnishing the details under sub- section (1) of said section for the month of March, 2019.] [(5) Notwithstanding anything contained in sub-section (4), in respect of an invoice or debit note for supply of goods or services or both pertaining to the Financial Years 2017-18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take input tax credit in any return under section 39 which is filed up to the thirtieth day of November, 2021. (6) Where registration of a registered person is cancelled under section 29 and subsequently the cancellation of registration is revoked by any order, either under section 30 or pursuant to any order made by the Appellate Authority or the Appellate Tribunal or court and where availment of input tax credit in respect of an invoice or debit note was not restricted under sub-section (4) on the date of order of cancellation of registration,....
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.... his electronic credit ledger, in accordance with Section 41, to be maintained in such manner as may be prescribed. (3) The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made thereunder in such manner and subject to such conditions and within such time as may be prescribed. (4) The amount available in the electronic credit ledger 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 3[and restrictions] within such time as may be prescribed. (5) The amount of input tax credit available in the electronic credit ledger of the registered person on account of- (a) integrated tax shall first be utilised towards payment of integrated tax and the amount remaining, if any, may be utilised towards the payment of central tax and State tax, or as the case may be, Union territory tax, in that order; (b) the central tax shall first be utilised towards payment of central tax and the amount remainin....
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....rest, penalty, fee or any other amount available in the electronic cash ledger under this Act, to the electronic cash ledger for,- (a) integrated tax, central tax, State tax, Union territory tax or cess; or (b) integrated tax or central tax of a distinct person as specified in sub-section (4) or, as the case may be, sub-section (5) of section 25, in such form and manner and subject to such conditions and restrictions as may be prescribed and such transfer shall be deemed to be a refund from the electronic cash ledger under this Act: Provided that no such transfer under clause (b) shall be allowed if the said registered person has any unpaid liability in his electronic liability register.] (11) Where any amount has been transferred to the electronic cash ledger under this Act, the same shall be deemed to be deposited in the said ledger as provided in subsection (1).] [(12) Notwithstanding anything contained in this Act, the Government may, on the recommendations of the Council, subject to such conditions and restrictions, specify such maximum proportion of output tax liability under this Act or under the Integrated Goods and Services Tax ....
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....ons 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."] 13. It is to be reiterated that right to avail and utilize ITC is clearly a statutory right subject to conditions as set out in the applicable statutory provisions. Gujrat High Court in its judgment in Samay Alloys India Pvt. Ltd.'s case (supra), after discussing manner of ITC utilization and concept of ECL in GST, concluded that availability of credit in the ECL is a condition precedent for exercise of power under Rule 86-A of Rules, 2017. Relevant portion of decision of Gujrat High Court in Samay Alloys India Pvt. Ltd.'s case (supra) reads as under :- "28. Rule 86A of the CGST Rules empowers the Commissioner or his subordinates to freeze the debit in the electronic credit ledger provided he has reasons to believe that the credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible. Thus, the condition precedent is that the input tax credit should be available in the electro....
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.... 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 period of time and on a provisional basis. In case debit entries are made by the proper officer, the same will tantamount to permanent recovery of the input tax credit and certainly permanent recovery is governed by the statutory provisions (Section 73 of 74 of CGST Act) and it certainly travels beyond the plain language and underlined intent Rule 86A. XXXXX 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....
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....guage 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." 14. Delhi High Court while adjudicating upon the identical question in the case of Best Crop Science P. Ltd.'s case (supra) arrived at the same conclusion. It was held that Rule 86-A of Rules, 2017 is not a provision for recovery of Tax or other dues but merely enables the concerned authority to take temporary measures for protection of interest of the revenue. Denial of access to this resource, it was held, denied a tax payer even though temporarily, access to its assets, therefore, same has to be interpreted strictly. The Bombay High Court recently in the case of Rawman Metal and Alloys Vs. The Deputy Commissioner of State Tax, Thane, 2025(10) TMI 489 has also taken the view as expressed in Samay Alloys India Pvt. Ltd.'s and Best Crop Science P. Ltd.'s cases (supra). 15. Decision of Calcutta High Court in Basanta Kumar Shaw's case (supra) was duly considered in the case of Best Crop Science P. Ltd.'s case (supra). Relevant discussion in this regard is reproduced as hereunder :- "61. The aforesaid c....
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....ds "credit of input tax available in the electronic credit ledger" plainly refers to the credit, which is at the given point of time available in the taxpayer's ECL. If the same had already been utilized in payment of tax, penalties or other dues, or has been refunded, the same would not be available in the ECL. 63. It is relevant to understand the meaning of the words, "availed", "available in the electronic credit ledger", "used" and "utilized" as used in the CGST Act and the Rules. 64. Section 41 of the CGST Act contains provisions regarding availment of ITC. It is relevant to refer to said Section at this stage and the same is set out below: "41. Availment of input tax credit.- (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to avail the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited to his electronic credit ledger. (2) The credit of input tax availed by a registered person under sub- section (1) in respect of such supplies of goods or services or both, the tax payable whereon has not been paid by the supplier, shall be reversed along ....
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....y, if ITC has been wrongly availed or utilized, the taxpayer is required to pay the said amount along with interest under Section 50(3) of the CGST Act as well as penalty leviable under the provisions of the CGST Act. 69. In view of the above, when Rule 86A(1) of the Rules refers to the ITC available in the ECL of a taxpayer (which the Commissioner or the officer authorized by him has reason to believe has been fraudulently availed or is ineligible), it clearly refers to the amount that is lying to the credit of the taxpayer in his ECL. It is difficult for us to accept that the expression "available in the electronic credit ledger" should be read as the ITC that was available in the ECL sometime earlier, prior to the same being used." 17. It is specifically held in the abovesaid decision that there is no ambiguity in the plain language of Rule 86-A of Rules, 2017 and neither does literal construction of this Rule lead to any absurdity. It was further held that not allowing debit of ITC is a temporary measure which is to be imposed only if condition set out in Rule 86-A of Rules, 2017 are satisfied, thus enabling the Commissioner to withhold the available ITC in the ECL ....