TMI Blog2022 (3) TMI 1249X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to negative figure, the same shall not be utilized by the writ applicant till the show cause notice is issued if any under Section 73 or 74 respectively of the C.G.S.T. Act. Once the negative block is removed, the writ applicant shall proceed to file his returns with appropriate tax, penalty and interest, that may be determined in accordance with law. Application allowed. - R/SPECIAL CIVIL APPLICATION NO. 12986 OF 2021 - - - Dated:- 23-3-2022 - HONOURABLE MR. JUSTICE J.B.PARDIWALA AND HONOURABLE MS. JUSTICE NISHA M. THAKORE MR. HARDIK V VORA FOR THE PETITIONER MR UTKARSH SHARMA, AGP FOR THE RESPONDENT ORDER PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA 1 By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs: a. A writ of mandamus or any other writ, order or direction in the nature of mandamus directing the respondent to unblock the Input Tax Credit amounting to ₹ 7,68,554/- of CGST and ₹ 7,68,549/- of SGST totaling to ₹ 15,37,103/-; b. Pending hearing and final disposal of this petition, direct the respondent to allow petitioner to raise E-wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct the respondent to allow filing of GSTR-3B for the period April, 2021- 22 and 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. Hearing learned advocate, Mr.Hardik Vora and on advanced copy given to the learned AGP, Mr.Soham Joshi, we pass the following order: Issue Notice, returnable on 15.09.2021. Learned AGP waives service of notice for and on behalf of the respondent-State. Learned AGP to take the necessary instruction by next week and let the Court know of the reason of absence of any response. Pendency of this petition will not preclude the respondent to respond to the request made on 19.07.2021 and 30.07.2021. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtion of negative balance in the ledger would be wholly without jurisdiction and illegal. 29. On a plain reading of the opening part of 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 86 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N.L. Untwalia, CJ (as His Lordship then was) observed as under; 4. The questions which fall for determination in this case are-- (i) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the goods. Under Sub-rule (5) every assessee has to furnish to the proper officer a list in duplicate of all accounts 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions of this Act or of the rules made thereunder, the officer empowered by the Central Board 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 ₹ 50,000/- was pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reversed the decision. No argument seems to have been advanced nor is there any discussion as to whether in exercise of the 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audulent credit persistently and continuously cannot be the basis to invoke Rule 86A. 44. The power to restrict debit from the electronic credit 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 sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnised that tax and equity are strangers. Just as reliance upon equity does not avail an assessee, so it does not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)The Commissioner, or the officer authorised by him under 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 dated 22/01/2020 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 fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be subject to limitations imposed by law on crossutilization 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sheth is also right in his submission 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 nonusage 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a person 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) T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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