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2024 Supreme(Online)(DEL) 30679
HIGH COURT OF DELHI
VIBHU BAKHRU, Sachin Datta, JJ
BEST CROP SCIENCE PVT. LTD. THROUGH AUTHORIZED REPRESENTATIVE – Appellant
Versus
PRINCIPAL COMMISSIONER, CGST COMMISSIONERATE, MEERUT AND ORS – Respondent
W.P.(C) 10980/2024 | W.P.(C) 15380/2023 | W.P.(C) 5250/2024 | W.P.(C) 5395/2024 | W.P.(C) 5397/2024 | W.P.(C) 6997/2024 | W.P.(C) 7183/2024 | W.P.(C) 9350/2024
For the Appellants/Petitioners: Mr Himanshu Tyagi, Mr Jitin Singhal, Ms Vibhooti Malhotra, Mr Bhuvnesh Satija, Mr Udit Sharma, Mr Mohit Gupta, Mr Rajesh Mahna, Mr Ramanand Roy, Mr Mayank Routs, Ms Silky Wadhwa, Mr Shiva Narang, Mr Rakesh Kumar, Mr Praveen Kumar, Mr Atul
For the Respondents: Mr Harpreet Singh, SSC, Ms Suhani Mathur, Mr Jatin Kumar Gaur, Mr Anurag Ojha, Sr SC, Mr Subham Kumar, Mr Kumar Abhishek, Mr Dipak Raj Singh, Mr R Ramchandran, Sr SC, Mr Rajeev Aggarwal, ASC, Ms Shaguftha Hameed, Mr Prateek Badhwar, Mr Shubam Goel
Blocking input tax credit under Rule 86A is only lawful to the extent that credit is available in the taxpayer's Electronic Credit Ledger; exceeding this creates an illegal negative balance.
Headnote:(A) Central Goods and Services Tax Act, 2017 - Section 16(1) and (2) - Central Goods and Services Tax Rules, 2017 - Rule 86A - Input tax credit blocking - Petitioners challenged orders blocking input tax credit in their electronic credit ledgers, creating negative balances. Court held that Rule 86A does not permit blocking ITC exceeding the available credit. Thus, the blocking orders beyond that limit were deemed illegal. (Paras 1, 72, 83)
(B) Legal Principles - ITC is a vested right of a taxpayer, and blocking cannot occur without credit being present in the ledger. The blocking provision must be strictly interpreted.
(C) Findings - The court found that the blocking actions were excessive and illegal, leading to the quashing of those orders.
(D) Issues - Whether an officer can block ITC beyond the amount available in the ledger and the nature of the taxpayer's rights regarding ITC. (E) Ratio Decidendi - The ruling emphasizes that an order under Rule 86A is only valid if ITC exists in the ledger; exceeding this results in unlawful action. (F) Result - Petitions allowed; blocking orders are set aside to the extent of the excess. (G) Parties - Taxpayers vs. Tax authorities. (H) Dissenting Opinions - None presented.
| Table of Content |
|---|
| 1. input tax credit can be blocked under specific conditions. (Para 1 , 2 , 3) |
| 2. court observes nature of itc as a vested right. (Para 4 , 21) |
| 3. petitioners argue itc should not be blocked. (Para 5 , 6 , 8) |
| 4. interpretation of rule 86a must prioritize taxpayer rights. (Para 18 , 37 , 63) |
| 5. petitions are allowed as orders imposing negative blocks are set aside. (Para 83) |
JUDGMENT
VIBHU BAKHRU, J THE CONTROVERSY
1. The petitioners, in these batch of petitions, are taxpayers and are registered under the Central Goods and Services Tax Act, 2017 (hereafter the CGST Act) / Delhi Goods and Services Tax Act, 2017 (hereafter the DGST Act). They impugn the respective orders passed by the Commissioner/officer authorized by Commissioner, under Rule 86A of the Central Goods and Services Tax Rules, 2017 (hereafter the Rules) to the extent that the said orders purport to block the input tax credit (hereafter also referred to as ITC) in their respective Electronic Credit Ledgers (hereafter also referred to as ECLs) in excess of the credit available in their respective ECLs. The same creates an artificial negative balance in the ECL. Resultantly, till the negative balance in the ECL of the respective petitioners is not extinguished by further addition (credit) of ITC in the ECL, the petitioners are disabled to utilize the ITC availed by them for payment of their dues. Thus, in effect, only the ITC remaining after adjusting the negative balance, would be available to the taxpayer for discharging its dues.
2. It is the case of the petitioners that Rule 86A of the Rules does not permit blocking of the ITC, which is unavailable in a taxpayer’s ECL. They claim that on a plain reading of Rule 86A of the Rules, the power of the competent officer to block the ITC of a taxpayer is confined to the ITC that is available at the material time in the taxpayer’s ECL. The Revenue counters the said contention. According to the Revenue, the Commissioner / authorized officer has the power to not allow the debit of an amount equivalent to the ITC, which he has reason to believe was fraudulently availed or is ineligible. The said amount is not confined to the credit balance of the ITC as available on the date of the order under Rule 86A of the Rules. The amount of ITC that can be blocked may exceed the credit balance of ITC as available in the ECL on the date of the order and the taxpayer would not be permitted to utilize the ITC for discharge of its dues or to seek a refund, till the full amount, which is alleged to have been fraudulently availed is blocked. The taxpayer can, thus, use or seek refund of the ITC, which is in excess of the amount, which the Commissioner or the authorized officer has reasons to believe is fraudulently availed or is inadmissible.
3. It is material to note that the petitioners have raised several other issues in their respective petitions; however, they have confined their challenge solely to the aforesaid controversy. This was also noted in the order dated 22.08.2024.
4. In view of the above, the only question that requires to be addressed is – whether Rule 86A of the Rules permits the Commissioner or an officer authorized by him, to block a taxpayer’s ECL (Electronic Credit Ledger) by an amount exceeding the credit available at the time of issuance of the said order?
SUBMISSIONS OF THE COUNSEL
5. The learned counsel appearing for the petitioners referred to the decision of the Gujarat High Court in Samay Alloys India Pvt. Ltd. v. State of Gujarat, Neutral Citation No. 2022 : GUJHC : 6969-DB and the decision of the Telangana High Court in Laxmi Fine Chem vs Assistant Commissioner ,
6. They submit that a taxpayer has a vested right in utilising the ITC as available in his ECL for discharge of its dues or in appropriate cases for seeking a refund of the same. Thus, the same could not be blocked or appropriated except by a specific statutory provision to
