Blocking the ITC by creating a negative credit in the electronic credit ledger, not permissible under law

Facts of the Case:-  In this case, the petitioner challenges the respondents' action of blocking input tax credit amounting to Rs. 50,06,000/-, on two primary grounds. Firstly, it was argued that the action was taken without issuing any show cause notice to the petitioner. Secondly, it was contended that the blocking of input tax credit was in violation of Rule 86(A) of the CGST Rules 2017, which allows blocking only to the extent of the available credit in the electronic credit ledger and not by creating a negative credit.

The learned Standing Counsel for the State acknowledges that the blocking of input tax credit was done without issuing a show cause notice, admitting that this action was against the principles of natural justice.

Held :-  The Court placed reliance upon the judgment in the case of Samay Alloys India Pvt. Ltd. v. State of Gujarat, which interpreted Rule 86A of the CGST Rules 2017, which emphasized that Rule 86A allows only for the blocking of available credit and not for the creation of negative credit.

The court finds that the action of the respondents is in contravention of Rule 86(A) and violates previous court decisions. according to Rule 86A of the CGST Rules, 2017, only the blocking of availing input tax credit up to the amount available in the petitioner's credit ledger is permissible. The authorities do not have the power to block the credit that the petitioner could avail in the future. Thus, the action of the authority in blocking the input tax credit by creating a negative credit in the electronic credit ledger was in contravention of Rule 86A. The court emphasized that the power to restrict debit from the electronic credit ledger is harsh and should be strictly governed by statutory language.

As a result, the impugned order was set aside, and the respondents were directed to immediately recall the order of blockage.

To read the complete judgment 2024 Taxo.online 886