Can blocking of credit in the ECL only to the extent the credit is available in the ECL and on the date when the order was passed?

Can blocking of credit in the ECL only to the extent the credit is available in the ECL and on the date when the order was passed?

The Calcutta High Court bench of Justice T.S.Sivagnanam has held that?there is no requirement that the electronic credit ledger should contain sufficient balance for the purpose of blocking the credit by invoking the said rule.

FACTS OF THE CASE

Petitioner received order no 102 dated 23.05.2022 was passed by which disallowed debit of IGST from the electronic credit ledger under Rule 86A of CGST Act 2017 ,discharge of any liability under Section 49 of the WBGST / CGST or the claim of any refund of any unutilized input tax credit.?

Against the order writ petitioner was dismissed directed order dated 20th June, 2022 in WPA 9820 of 2022

Petitioner has appeal against order dated 20th?June,2022 & Challenge the order no 102 dated 23.05.2022?

Petitioner submitted that the order impugned in the writ petition ought to have been quashed as the first respondent has initiated proceedings under Section 73 of the CGST/ WBGST Act and blocking of the input tax credit in the electronic credit ledger is not valid as it would tantamount to recovery of demand without any adjudication. Rule 86A provides for blocking of credit in the electronic credit ledger only to the extent the credit is available in the electronic credit ledger and on the date when the order was passed there was no credit available in the appellant’s electronic credit ledger. Therefore, the blocking is in the nature of negative blocking which is not provided for under Rule 86A of the said Rules. Further, it is submitted that the learned Writ Court ought to have taken into account that when the reasons to believe by the proper officer that the credit of the input tax available in the electronic credit ledger has been fraudulently availed or ineligible as stated under Rule 86 of the said Rules has culminated into a show-cause notice under Section 73/74 of the Act, the blocking of the electronic credit ledger cannot be sustained.

Respondent response as appellant was issued three show-cause notices served in 20.01.2022 and 28.01.2022. As per the data based record, there is a mismatch between the appellant’s input tax credit Form GSTR-2A (auto-populated) from details of outward supplies furnished by the appellant’s suppliers in their respective GSTR-1 and GSTR-3B for the tax periods from April 2018 to March 2019, March 2019 to March 2020 and April 2020 to March 2021 which is inadmissible as per the provisions. The petitioner was advised to furnish an explanation by 4th February, 2022 or pay the amount of tax as assessed in the show-cause notices along with applicable interest. On 30.03.2022 the appellant made a payment of Rs. 10 lakhs. To be noted that the appellant did not submit their reply to the show-cause notices within the time permitted.

Further, petitioner praying for extension of time to submit reply was given only on 31.05.2022 and by then the first respondent has already passed the order dated 23.05.2022 blocking the electronic credit ledger of the appellant. It is further submitted that proceedings have already been initiated under Section 73/74 of the Act and it is for the appellant to contest the show-cause notice and participate in the adjudication proceedings

Further, it is submitted that Rule 86A of the Rules will make it clear that blocking of the electronic credit ledger is permissible if the authority concerned has reasons to believe that the credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible the word “available” in Rule 86A (1) of the Rules has to be read to mean that the credit of input tax which was available in the electronic credit ledger at the relevant time which in the opinion of the authority has been fraudulently availed or the appellant is ineligible to avail such credit. Therefore, to state that merely because the balance available in the electronic credit ledger is NIL, the Rule cannot be said to be inoperative.

COURT HELD

Considering the facts as recorded,?held that the expression negative balance, such theory cannot be imported to justify the contention that there should be a positive balance to invoke Rule 86 A. Such interpretation would render the rule redundant and it can be also rewarding the assesses at times. Thus shows that there is no requirement that the electronic credit ledger should contain sufficient balance for the purpose of blocking the credit by invoking the said rule.

Thus, for the reasons given above, we are not inclined to interfere with the order passed by the learned Single Bench. Accordingly, the appeal fails and the same is dismissed.

ANALYSIS OF THE JUDGEMENT

The appellant has used the expression “negative blocking”. No such expression in Rule 86 A. If the statute does not use the expression negative balance, such theory cannot be imported to justify the contention that there should be a positive balance to invoke Rule 86 A. Such interpretation would render the rule redundant and it can be also rewarding the assesses at times.

Since the order blocking the electronic?credit ledger had been passed on 23.05.2022 and the period for which the wrong availment has been alleged is from April 2018 to March 2021, the first respondent is directed to expeditiously conclude the proceedings subject to the appellant cooperating in the adjudication and pass orders in terms of the above directions within 8 weeks from the date of receipt of the server copy of this order.

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