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TMI Blog2024 (10) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... writ in the nature of mandamus or any other appropriate writ of order directing the Respondents to forthwith withdraw the negative block of the electronic credit ledger of the Petitioners and quash and set aside the impugned Action of negatively blocking the Input Tax Credit in the electronic credit ledger of the Petitioner amounting to Rs. 2,44,05,567/-on 8/12/2023; (B) Pending notice, admission and final hearing of this petition, this Hon'ble Court may be pleased to direct the Respondents to forthwith withdraw the negative block of the electronic credit ledger of the Petitioners; (C) Issue a writ of mandamus or writ in the nature of mandamus or any other appropriate writ or order directing either one of the Respondents to carry on with the investigation/ proceedings against the Petitioner; (D.) Ex parte ad interim relief in terms of prayer B may kindly be granted; (E) Such other or further reliefs 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 the Petitioner shall forever pray." 5. Brief facts of the case are that the petitioner company is incorporated under the provisions of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e including the necessary documentation to the office of respondent no. 4. 10. The letter of the petitioner was accompanied by Panchnama and summons issued dated 22.11.2023 and the details submitted by the petitioner in connection with the ITC availed against invoices received from M/s. Galaxy Enterprise. The petitioner also submitted challan for payment of Rs. 34,18,849/- in form DRC-03 dated 24.11.2023 in respect of ITC availed for the month of April 2023 and Rs. 29,79,402/- for the month of May 2023 on the basis of input received from M/s. Galaxy Enterprise pursuant to the investigation carried out on 22.11.2023. 11. It is also the case of the petitioner that prior to such proceedings being initiated by the Directorate General of GST Intelligence, Office of the State Taxes and Excise, Central Enforcement Zone, Una Himachal Pradesh had initiated the proceedings by issuing GST DRC-01A dated 16.09.2022 followed by the show cause notice in Form DRC-1 dated 3.12.2022 for the years 2018-2019 to 2020-2021 in order to investigate supplies from various firms whose GST registrations were cancelled suo motu by the department and the petitioner cooperated in such inquiry and by order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Assistant Director DGGI Surat Zonal Unit requesting for unblocking the credit. 19. Learned advocate Mr. Priyank Lodha for the petitioner submitted that in spite of various requests and communication made by the petitioner thereafter also in the month of March 2024, respondent authorities have not given any reason or opportunity of hearing to the petitioner with regard to the blocking of the ITC though there is no balance in Electronic Credit Ledger. 20. It was submitted that there is no power under the provision of the GST Act to negatively block any ITC which is to be availed in future. Reference was also made to Rule 86A of the Central Goods and Service Tax Rules,2017 (for short 'CGST Rules') which 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. It was therefore, submitted that in the facts of the case, the respondent authorities have failed to consider that the balance in the Electronic Credit Ledger of the petitioner was Nil when blocking of Rs. 2,44,05,567/- was impose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner is not able to file any monthly GST returns as the petitioner is not able to claim any fresh ITC as the same would be adjusted against the negative balance resulting into severe financial constrain and the petitioner is also incapable to fulfill its commitments to its suppliers. 26. It was also submitted that blocking of Electronic Credit Ledger of the petitioner and debiting of ITC without issuance of any communication bearing a Documentation Identification Number (DIN) is also illegal and void ab initio. 27. Learned advocate Mr. Lodha also referred to and relied upon the decision of this Court in case of Milap Scrap Traders v. State/Commercial Tax Officer (judgment dated 23.03.2022 rendered in Special Civil Application No. 12986 of 2021) wherein in similar facts, Division Bench of this Court has analysed the provisions of Rule 86A of the CGST Rules along with circulars and notifications and allowed the petition by directing the respondent to withdraw the negative blocking of Electronic Credit Ledger. 28. Learned advocate Mr. Lodha also referred to the decision of Telangana High Court in case of M/s. Laxmi Fine Chem v. Assistant Commissioner, Malkajgiri-II Circle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the petitioner is free to carry on his business activities by effecting payment of requisite amount of tax into his account and all that has been prevented is that the petitioner would not be entitled to adjust the tax by availing the credit upto the limit of blocked input tax credit, if available in his Electronic Credit Ledger. 33. It was further submitted that as per Rule 86A of the CGST Rules, blocking of input tax credit does not contemplate any recovery of tax due from the petitioner and it only provides in certain situations and upon certain conditions being fulfilled, specified amount may be held back and be not allowed to be utilised by the petitioner towards discharge of its liabilities on the outward tax or towards refund and just creates a lien without actual recovery being made or attempted and there was no mention of personal hearing before invoking the provisions of Rule 86A of the CGST Rules. 34. Learned advocate Mr. Siddharth Dave further submitted that the contention raised on behalf of the petitioner that no intimation has been given regarding the blocking of the ITC is not true and correct as in the facts of the case, ITC availed by the petitioner needed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces 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 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 unutilised amount. (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." 38. As per the eventualities provided in clauses (a) to (d) of Sub-rule (1), the Commissioner or an officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eported in (1999) 1 SCC 450, the Court observed thus: "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." 42. After referring to Circular No. 4 of 2021 dated 24.05.2021 issued by the Office of the Commissioner of State Tax, State Goods & Services Tax Department, Kerala with regard to blocking of the credit, it was observed 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. But such cross-utilization between CGST and SGST is not permissible and therefore, the SGST credit ledger cannot be blocked if sufficient credit balance is not available under the CGST head and vice versa. 43. Reference was also made to the decision of this Court in case of S.S. Industries vs. Union of India, reported in (2021) 87 GSTR 71 (Guj.), an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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