Blocked credits
Section 17(5) of the Central Goods and Services Tax Act, 2017 provides the list of goods/services for which input tax credit is not available i.e., blocked credits as detailed below-
- motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:-
- further supply of such motor vehicles; or
- transportation of passengers; or
- imparting training on driving such motor vehicles;
- vessels and aircraft except when they are used–
- for making the following taxable supplies, namely:-
- further supply of such vessels or aircraft; or
- transportation of passengers; or
- imparting training on navigating such vessels; or
- imparting training on flying such aircraft;
- for transportation of goods;
- services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to above; the input tax credit in respect of such services shall be available-
- where the motor vehicles, vessels or aircraft are used for the purposes specified therein;
- where received by a taxable person engaged-
- in the manufacture of such motor vehicles, vessels or aircraft; or
- in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;
- the following supply of goods or services or both-
- food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to except when used for the purposes specified therein, life insurance and health insurance;
the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
- membership of a club, health and fitness centre; and
- travel benefits extended to employees on vacation such as leave or home travel concession;
the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.
- works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
- goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
- goods or services or both on which tax has been paid under section 10 (composition scheme);
- goods or services or both received by a non-resident taxable person except on goods imported by him;
- goods or services or both used for personal consumption;
- goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
- any tax paid in accordance with the provisions of-
- section 74 – Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful mis-statement or suppression of facts;
- section 129 – Detention, seizure and release of goods and conveyances in transit; and
- section 130 – confiscation of goods, conveyances and levy of penalty.
Any registered person cannot avail input tax credit strictly on the above said goods or services.
Blocking of credit
Section 17(5) mandatorily restricts to take input tax credit on the goods and services mentioned in the said section. One question arises. Whether the Revenue can block the input tax credit available in the electronic credit ledger? Yes. They can block the credit as per Rule 86A of the Central Goods and Services Tax Rules, 2017.
Rule 86A provides the conditions of use of amount available in electronic credit ledger. Rule 86A(1) provides that the Commissioner or an officer authorized 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-
- 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-
- 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
- without receipt of goods or services or both; or
- 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
- 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
- the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36,
may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilized amount.
Rule 86A(2) provides that the Commissioner, or the officer authorized 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.
Rule 86A (3) provides that such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.
The concerned Jurisdiction Officer decides to temporarily block the input tax credit that is available to a taxpayer when there is a requirement of further investigation in the revenue. The officer may completely or partly block CGST, SGST, IGST and Cess balance. After the investigation, the concerned officer unblocks the ITC that was previously blocked. The taxpayer will be notified through an email and SMS while blocking and unblocking of input tax credit.
- If Tax Official blocks an amount in excess of balance credit available in the Electronic Credit Ledger of the taxpayer, then a debit entry for such amount will be posted in the Electronic Credit Ledger of that taxpayer. The balance of the Electronic Credit Ledger for such cases will become negative.
- If a credit entry is subsequently posted in the Electronic Credit ledger, then the amount would be adjusted against such negative balance and the Electronic Credit Ledger will be updated accordingly.
For Example: Balance in the Electronic Credit Ledger is ₹ 10000. Tax Official intends to block ₹ 12000. In this case, Electronic Credit Ledger will show a balance of -2000. Subsequently, if an amount of ₹ 3000 is credited to the Electronic Credit Ledger, the entry of ₹ 3000 credit will be adjusted against the negative balance and the net balance available would become ₹ 1000.
- Negative amounts in Electronic Credit Ledger cannot be utilized for payment of liabilities.
In M/S VIMAL PETROTHIN PRIVATE LIMITED. VERSUS COMMISSIONER, CGST AND OTHERS – 2021 (7) TMI 127 - UTTARAKHAND HIGH COURT the petitioner is manufacturing unit at Haridwar. The input tax credit of the petitioner, to the extent of ₹ 1.5 crores was provisionally blocked by the Authorities vide order dated 15.01.2020 on the ground of fake invoices issued by non existence firms under Rule 86A(1). Being aggrieved against the provisional blocking of input tax credit by the Commissioner, the petitioner filed the present writ petition before the High Court with the prayer to direct the Commissioner to unblock the blocked credit.
The petitioner submitted the following before the High Court-
- The charge against the petitioner is that he fraudulently availed input tax credit on the basis of fake invoices and proceedings under Rule 86(A)(1) of CGST Rules, 2017 were drawn against him.
- The Commissioner or the Officer authorized by him under Sub-Rule (1), upon being satisfied that condition for disallowing of electronic credit ledger, no longer exist, allow such credit.
- The outer limit for disallowing debit of electronic credit ledger is one year, as has been prescribed in Sub-Rule (3) of Rule 86(A) of the CGST Rules, which starts running from the date of imposing such restriction.
- In view of Sub-Rule 3 of Rule 86(A) of the Rules, the period of one year expired on 14.01.2021, consequently, continuance of blockage of petitioner’s input tax credit ledger after 14.01.2021 is not supported by law.
The Revenue accepted the contentions of the petitioner that the blocked credit cannot be extended beyond 14.01.2021. In view of the admission by the Revenue that continuance of blockage of petitioner’s electronic credit ledger cannot continue beyond one year, the High Court allowed the writ petition. The High Court directed the revenue to unblock input tax credit availed by the petitioner in its electronic credit ledger. However, this order will not preclude the Revenue from taking such action against the petitioner, as is permissible under law.
Viewing Blocked Credit Balance
The Electronic Credit Ledger enables the taxpayer to view the credit balance as on date and Provisional Credit Balance and Blocked Credit Balance details. The taxpayer shall use the following procedure to view Blocked Credit Balance:
- Log in to the Portal - The taxpayer has to login to the official GST Portal.
- The taxpayer has to enter the username and password.
- From the ‘Services’ tab, click ‘Ledgers’ and then select ‘Electronic Credit Ledger’ command.
- To view input tax credit amount available in the Electronic Credit Ledger, which has been blocked by Jurisdictional Tax Officer, click the Blocked Credit Balance link.
- The blocked credit balance will show the following details-
- Date;
- Reference No;
- Whether it is blocked/unblocked;
- Amount of blocked/unlocked credit – tax wise i.e., IGST, CGST, SGST/UTGST, Cess
- Blocked/unblocked by – the name of the officer who blocked the credit
- Reasons for blocking/unblocking – the reasons given by the officer who blocked the credit .
- Attachments – to view any document uploaded by tax official.
The taxpayer has to either click on ‘Save as PDF’ or ‘Save as Excel’ button to save the Blocked Credit Balance.
