No Order can be Passed for Blocking of Credit in excess of Contravention to Negative Balance in ECRL: Telangana HC [Read Order]

A Division Bench of the High Court of Telangana has clarified that the GST Authority does not have the power to issue orders for the insertion of a negative balance in the credit ledger of taxpayers.

This verdict came resultant to a writ petition filed by Laxmi Fine Chem against the Assistant Commissioner challenging the blocking of input tax credit amounting to Rs. 50.06 lakhs for the period from February 1 to February 13, 2024.

The petitioner contested the action on two primary grounds: firstly, the absence of a show cause notice before blocking the credit, and secondly, the contention that the blocking violated Rule 86A of the Central Goods and Services Tax Rules, 2017.

The bench heard S.Dwarkanath, Senior Counsel appearing on behalf of Siddharth Gilda, learned counsel for the petitioner, Swaroop Oorilla, Special Government Pleader for respondent Nos.1 and 2 and Rajesh Reddy, representing Gadi Praveen Kumar, Deputy Solicitor General of India for respondent No.3 and perused the material available on record.

The Division Bench of Justices P. Sam Koshy and N. Tukaramji observed that Rule 86A of the Central Goods and Services Tax Rules, 2017, stipulates that only the blocking of available input tax credit in the electronic credit ledger of the petitioner is permissible.

The Bench observed that, the action on the part of the respondents in passing an order of negative credit to be contrary to Rule 86(A).

In the event, if no input tax credit was available in the credit ledger, the rules does not provide for insertion of negative balance in the ledger and therefore what was permissible was only to the block the electronic credit ledger and under no circumstances could there had been an order for insertion of negative balance in the ledger, it was observed.

The Bench also added that “If there is a credit balance available, then the authorities concerned in terms of provisions of Rule 86(A) may for reasons to be recorded in writing not allowed the credit of the said amount available equivalent to such credit. However, there is no power conferred upon the authorities for block of the credit to be availed by the petitioner in future.”

It was thus held that, “The action on the part of the respondents is also not sustainable for the reason that blocking of the input tax credit effectively deprived the petitioner of his valuable right to discharge his liability and realize the value in monetary terms.”

In result, the impugned order was quashed.

To Read the full text of the Order CLICK HERE

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