Negative Blocking of ITC in Excess of Amount available in ECL to Disallow Debit not allowable under GST Rule 86A(1): Delhi HC [Read Order]

The Delhi High Court held that Rule 86A of State and Central Goods and Services Tax ( GST ) Rules, 2017 should be interpreted literally, which limits the blocking of Input Tax Credit ( ITC ) to the amount available in the ECL at the time the order is passed.

In the ruling, the Delhi High Court dealt with the issue of blocking Input Tax Credit ( ITC ) beyond what is available in the taxpayer's Electronic Credit Ledger ( ECL ) under Rule 86A(1) of the Central Goods and Services Tax ( CGST ) Rules, 2017.

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The petitioners in this case challenged the blocking of ITC that exceeded the available balance in their ECLs, arguing that Rule 86A of Central Goods and Services Tax ( CGST ) Rules, 2017 does not permit such an action.

The batch of eight petitioners argued that the power under Rule 86A should be limited to the ITC that is actually available in the ECL at the time the blocking order is issued. They cited precedents from the Gujarat and Telangana High Courts, which had previously ruled that such an action should not extend beyond the credit available in the ledger.

The taxpayers also invoked constitutional protection under Article 300A, asserting that ITC, once availed, becomes a property right that cannot be blocked without due legal authority.

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The Revenue, however, argued that Rule 86A empowers officers to block not just the ITC that is available in the ledger at the time but also the amount of ITC that might have been fraudulently availed or is ineligible, even if it exceeds the current balance. They referred to decisions from other High Courts, including the Calcutta High Court, which upheld the blocking of ITC beyond available amounts to protect the revenue.

The court clarified that while the government can freeze ITC to safeguard revenue interests, this power should not extend to amounts beyond what is currently in the taxpayer's credit ledger.

The ruling reaffirmed that ITC is a valuable right of the taxpayer, and blocking it requires specific statutory backing and held that Rule 86A of Central and State Goods and Services Tax Rules does not allow for the creation of a negative balance by blocking more ITC than is available in the ledger.

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The Delhi High Court Bench of Justice Vibhu Bakhru and Justice Sachin Dutta held that Rule 86A of State and Central Goods and Services Tax Rules should be interpreted literally, which limits the blocking of ITC to the amount available in the ECL at the time the order is passed.

To Read the full text of the Order CLICK HERE

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