The Gujarat High Court in a recent case ruled that there cannot be any blocking of the credit in electronic credit ledger if there is no sufficient balance available. The Division Bench ruled as above while hearing a case where the assessee contested the blocking of Input Tax Credit ( ITC ) amounting to ₹2,44,05,567 in its electronic credit ledger.
PMW Metal and Alloys Pvt. Ltd, the assessee/petitioner availed Input Tax Credit ( ITC ) under the Central/Gujarat State Goods and Services Tax Act, 2017. The assessee’s ITC, amounting to Rs. 2,44,05,567/-, was blocked by the Assistant Commissioner, CGST Una. As a result of this blocking, the assessee’s GST credit ledger reflected a negative balance.
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The assessee argued that the department has failed to consider that the balance in the Electronic Credit Ledger of the assessee was Nil when blocking of Rs. 2,44,05,567/- was imposed and therefore, if no input tax credit was available in the ledger, the blocking of Electronic Credit Ledger under Rule 86A of the GST Rules and insertion of negative balance in the ledger would be wholly without jurisdiction and illegal.
The bench referred to the case of Samay Alloys India Pvt. Ltd. v. State of Gujarat [(2022) where Gujarat High Court held that “If no input tax credit was available in the ledger, the blocking of electronic credit ledger under Rule 86-A of the Rules and insertion of negative balance in the ledger would be wholly without jurisdiction and illegal”
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The bench comprising Justices Bhargav D. Karia and Niral R. Mehta observed that if there is Nil or insufficient balance in a particular tax head in the Electronic Credit Ledger, then the balance in another tax head can be blocked only if the cross-utilization from such head is permissible in law.
The bench noted that such cross-utilization between CGST and SGST is not permissible and therefore, the SGST credit ledger cannot be blocked if sufficient credit balance is not available under the CGST head and vice versa.
It was viewed that Rule 86A of CGST Rules, 2017 empowers the Commissioner or authorized officer to restrict debit of fraudulently availed or ineligible Input Tax Credit ( ITC ) from the electronic credit ledger for discharge of liabilities or refund claims, subject to recording reasons in writing.
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While allowing the petition, the court concluded that there cannot be any blocking of the credit in Electronic Credit Ledger if there is no sufficient balance available and directed the department to withdraw the negative block of the Electronic Credit Ledger.
Priyank P Lodha appeared for the petitioner and Siddharth H Dave appeared for the respondent.
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