Court Finds Negative Blocking of ITC in ECL Impermissible Under GST Rules
In a significant judgment, the Punjab and Haryana High Court, in the case of M/s Garg Furnace Limited v. Union of India, has ruled that the Goods and Services Tax (GST) authorities cannot block more Input Tax Credit (ITC) than what is available in the taxpayer's Electronic Credit Ledger (ECL) at the time of the order. This decision comes as a relief to businesses facing similar issues of negative blocking, which the court deemed as impermissible under Rule 86A of the GST Rules, 2017.
The case involved M/s Garg Furnace Limited, which challenged the action of the GST authorities in blocking its ECL by an amount exceeding the available ITC, without prior notice, thereby violating the principles of natural justice. The court, comprising Justices Lisa Gill and Parmod Goyal, heard arguments from both sides and referred to similar judgments from various High Courts, including those of Gujarat and Delhi, that upheld the principle that blocking ITC beyond the available credit in the ECL is illegal.
The court emphasized that the right to avail and utilize ITC is a statutory right subject to certain conditions, and any blocking of credit without the availability of such credit in the ECL is without jurisdiction. It further noted that Rule 86A is a temporary measure and not a substitute for permanent recovery, which should be pursued under Sections 73 and 74 of the CGST Act, 2017.
In its detailed judgment, the court pointed out that the GST authorities have other means to recover wrongly availed credit, such as initiating proceedings under Sections 73 or 74, cancellation of registration, or provisional attachment of property under Section 83. The judgment aligns with the decisions of other High Courts and was also influenced by the Supreme Court's refusal to entertain appeals against similar verdicts.
This ruling clarifies the limitations on the powers of GST authorities under Rule 86A, ensuring that businesses are not subjected to arbitrary actions without due process. It reinforces the importance of adhering to statutory provisions and principles of natural justice, providing much-needed clarity and consistency in the application of GST rules.
Bottom Line:
Goods and Services Tax - Rule 86A of GST Rules, 2017 does not permit blocking of Electronic Credit Ledger in excess of Input Tax Credit available at the time of issuance of the order. Negative blocking of Input Tax Credit is impermissible under the Rule.
Statutory provision(s): Rule 86A of GST Rules, 2017, Section 73 and Section 74 of CGST Act, 2017
M/s Garg Furnace Limited v. Union of India, (Punjab And Haryana)(DB) : Law Finder Doc Id # 2829304
