Professional Update

(Goods and Service Tax Case laws)

                        D.B. Civil Writ 10980/2024 (Del HC)

Best Crop Science Pvt. Ltd. through authorized representative.

vs

Principal Commissioner CGST, CGST Commissionerate & Anr.

Ratio Decidendi

Rule 86A of the CGST Rules does not provide the inherent power to the commissioner or subordinate that debit the Electronic credit balance below the amount available in the electronic credit ledger. (Delhi High Court).

Facts

Petitioner impugns order passed by the commissioner/ authorized officers to the extend that the said order purport to block the input tax credit in their respective Electronic credit ledger in excess of the credit available in their respective ECLs.

Issue

Whether the commissioner or the authorised officer have the power to debit the ECL in excess of the credit available in the ECL.

Held.

Delhi High Court has held that It is necessary to bear in mind that not allowing debit of an ITC is a temporary measure, which is imposed only if the conditions set out in Rule 86A of the Rules are satisfied. It is not necessary for any proceedings to be initiated against the taxpayer prior to passing an order under Rule 86A(1) of the Rules. The said order can be passed at any stage if the Commissioner or an officer authorized by him has reasons to believe that the credit available in the ECL of a taxpayer has been fraudulently availed or is ineligible. This is clearly an emergent provision, which enables the Commissioner to withhold the available ITC in the ECL, which he has reason to believe has been fraudulently availed or is ineligible. An order under Rule 86A(1) of the Rules does not require a prior show cause notice to be issued to a taxpayer as it is by its very nature an emergent provision to immediately block the usage of the ITC credited in the ECL, which the Commissioner or an officer authorized by him has reasons to believe has been fraudulently availed or is ineligible. The concerned authorities are required to proceed to determine whether a taxpayer has wrongly availed or utilized the ITC, under Sections 73 or 74 of the CGST Act and if it is found that the taxpayer has wrongly availed of the ITC the proper officer is required to pass an order to determine the amount of tax, interest or penalty payable. The demand as raised are required to be determined under Sections 73 and 74 of the CGST Act.

Rule 86A(1) of the Rules does not contemplate an order, the effect of which is to require a taxpayer to replenish his ECL with valid availment of ITC, to the extent of ITC used in the past, which the Commissioner or an officer authorized by him has reasons to believe, was fraudulently availed or was ineligible. Such an interpretation would in effect amount to construe an order under Rule 86A(1) of the Rules as an order for recovery of tax. This is obvious because the taxpayer would now have to incur a larger cash outflow for payment of taxes as he would be denied utilization of validly availed ITC, which he would require to accumulate to compensate for the ITC availed and utilized which the Commissioner or an officer authorized by him, has reasons to believe was fraudulently availed or was ineligible.

High court sets aside the impugned order and the negative blocking of the credit in the ECL is to be resorted back into the petitioner ECL.  

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CA Manoj Garg

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